The Shadow Economy

Someone I know posted this editorial on Facebook. I read it with great interest, both because I’m a freelancer and because I also (though not on this blog) write a lot about economics.

Although independent workers were a full one-third of the U.S. workforce at last count (which was 6 years ago), they aren’t counted by the Bureau of Labor Statistics in a consistent and ongoing way. Current statistics tend to lump workers into one of three classes: private wage and salary workers, government workers, and the self-employed. But these groupings don’t account for the nuances in how people work now and the overlap between groups. For example, on-call or contract workers might be lumped in with wage and salary workers, when really they’re independent workers. As a result, our outdated numbers have led to outdated policies that no longer meet the needs of America’s 21st century workforce.

When the government subcontracts its functions out to the private sector, someone–a political donor with access and influence and lobbying clout–is probably making a killing. When the private sector outsources something, it’s usually saving itself a bundle. Someone who used to have a full-time job and benefits has been let go; someone (maybe the same person) is working irregular hours for much less money than they feel they deserve. Everyone knows that Third World countries have shadow economies, conducted off the books and as often as not in foreign currency. The US has one too for the worst kinds of jobs–all those non-union day laborers, many of them illegal immigrants, doing construction work or picking fruit or cleaning out cesspools. But a lot of work that makes tremendous cognitive and creative demands and even enjoys high cultural status–writing, acting, painting, music-making, adjunct teaching–takes place outside the formal economy as well.

It’s cool to be able to tell people that you’re a writer and all, but nothing imbues you with as keen an appreciation for the laws of supply and demand than having a skill that you share with so many other would-be workers that its price has been bid down to nothing. At the same time, the ethos of the winner-take-all economy sees to it that the bulk of the rewards flow to the tiny minority of superstars that need them the least. If you prefer not to think of yourself as a worker but as a creative entrepreneur, then trying to sell a commodity (a midlist book) that is essentially fungible will swiftly cut you down to size. One unbranded writer looks pretty much the same as another on a balance sheet, after all.

6 thoughts on “The Shadow Economy

  1. If you haven’t already seen it, I would recommend “The Liberty Scam” at Slate which I think is complimentary to this post. The author explains the intellectual slight of hand that Robert Nozick employed to confuse Orwell’s idea of liberty with that of Hayek’s; failing to note that this leads to “liberty” being in the hands mostly of the very few who end up wealthy.

    1. And am only slightly less embarassed at my use of a pleonasm in the above comment, though the sting is eased by my pride in knowing the word “pleonasm.”

  2. Step back… Living in America. Taking a hot shower every morning. Freedom to believe or not. Commenting on blogs because the power is always on. Plenty of coffee and Coke Zero. No income. Beholding to no one for my pay. A wife who loves me and works to pay the bills. White male in America at the beginning of the 21st century. And I want to complain? Sounds like freedom.

  3. Is this more about the inefficient use of human capital or seeking human capital with the best comparative advantage?

  4. I think it depends upon which side of the transaction you’re on. But the real answer is that “efficiency” and “advantage,” when calculated in monetary terms, don’t tell anywhere near the whole story.

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