black economy

black economy
   The scale of the hidden economy is unknown, though it is generally recognized to be considerable (Benito 1987). The black economy is particularly important in the service industries, in construction and in certain manufacturing industries like textiles, toys and food. It also exists in agriculture, where part of the production is consumed by the producers themselves or distributed outside normal market channels. The existence of the black economy is deeply embedded in social attitudes to the payment of taxes, in informal working arrangements, in people pursuing more than one job (pluriempleo) and in the widespread existence of small family firms. Fre-quently it involves deliberate fraud of the welfare system. Many people work in the visible economy for long enough to gain entitlement to unemployment benefit, then move to the black economy where they are exempt from taxation. In the black economy people are unprotected by employment legislation, frequently receive low wages, have little job security and little opportunity for promotion. Employers have also used the black economy to bypass government regulations and the rigidities of the labour market, which have contributed in part to the failure of the economy to create legitimate jobs (OECD 1994). During the Franco era, dismissals necessitated a lengthy redundancy procedure, agreement by government and trade unions, and large redundancy payments. Busi-nesses operating in the black economy are only kept afloat by low wages and low overheads, which enables them to compete unfairly with legitimate enterprises. In rural areas the black economy has been associated with the welfare system, in particular the Agreement for the Employment and Protection of Agricultural Workers (Acuerdo para el Empleo y la Protection Social Agrarios) (1996), which incorporates public works programmes sponsored by local councils. These schemes have been widely abused, fostering corruption and patronage, with people being credited for work they have not done and public money being syphoned off into private projects. Because part of the economy is hidden, official statistics may not always be reliable. The unemployment rate which is most often quoted is that based on the National Employment Survey (Encuesta de la Población Activa). Up to the mid-1990s this registered a national unemployment rate in excess of 20 percent and in some parts of Spain figures in excess of 30 percent. When employment in the black economy was taken into account, the real rates of unemployment were thought to be somewhat below these figures.
   - Benito, S. (1987) "La economía sumergida en España", Revista del Instituto de Estudios Económicos 1: 254–88.
   - OECD (1994) OECD Economic Surveys: Spain 1993-1994, Paris.
   Further reading
   - Ahn, N. and de la Rica, S. (1997) "The Underground Economy in Spain. An Alternative to Unemployment", Applied Économics 29, 6:733–43.
   - Hooper, J. (1995) The New Spaniards, Harmondsworth: Penguin (see especially chapter 17 for a clear treatment of the topic).
   - Mingione, E. (1995) "Labour market segmentation and informal work in southern Europe", European Urban and Regional Studies 2, 2:121–44.
   - Thomas, J. (1992) Informal economic activity, LSE Handbooks in Economics, London: Harvester Wheatsheaf (an accessible general account of the black economy).

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