Why Is The Illicit Economy Growing?

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Why is the illicit economy growing around the world? The underground economy has significantly become much more relevant in recent decades due to many contributing factors. Governments are trying to combat this increasing industry but its rapid growth has made it difficult to stiffen. Some government policies have actually made it easier for the black market to grow. The underground economy includes both legal and illegal actions, such as services where taxes are not withheld and illegal actions such as human trafficking. The growth of the black market is an overwhelming problem; governments lose critical revenue, crime rates increase and workers in the black market are often exploited. Shadow economies have grown in both countries with large black markets and countries with relatively small black markets with comparison to the GDP of the country. The shadow economy has been growing for the past thirty years in all the 21 countries of the OECD (Organization for Economic Co-operation and Development). The United State is considered by economists to have a smaller illicit economy; it still doubled from 4 percent of GDP in 1970 to 9 percent in 2000 (Schneider). Economists have attributed many factors to the continually growing black market. Economies that have a higher underground economy as a percentage of their gross domestic product typically have higher tax rates, more laws and regulations and less established punishments for illegal black market activities. The growth of the black market can be attributed to the burden of increasing tax and social security payments, and new restrictions appearing in the labor market, such as minimum wage laws. Employers and employees have great incentive to deviate from the economy by participating in the black market when there is a great difference between the cost of labor and the after-tax earnings from the work.

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