The Impact of the Underground Economy in California

The actual size of the underground economy is difficult to measure, but the impact is clear.

Weakens Critical State Programs

Reports on the underground economy show significant impacts on revenue needed to fund critical state programs.

Creates a Disadvantage for Our Businesses

When businesses operate in the underground economy, they gain an unfair, competitive advantage over businesses that follow labor, licensing, and payroll tax laws. This causes unfair competition in the marketplace and forces law-abiding businesses to pay higher taxes and expenses.

Puts Workers at Risk

Workers of noncompliant businesses are also affected. Their working conditions may not meet the legal requirements, which can put them in danger. Their wage earnings may be less than what is required by law, and benefits they are entitled to can be denied or delayed because their wages are not properly reported.

Affects Consumers

Consumers can also be affected when contracting with unlicensed businesses. Licensing provisions are designed to ensure sufficient skill and knowledge to protect consumers.

The underground economy affects everyone.

Additional Resources

• Combating the Underground Economy
• Report Payroll Tax Fraud