The Underground Economy
Thank you Senator Alarcon for the opportunity to speak to this committee
about the underground economy.
I will talk about the harm done to workers and their families, but I want
to make the connection of this problem to two of the state's major crisis
right now: the deficit and healthcare.
While no one really knows exactly how much money the state loses each
year to the underground economy, it has been estimated that it ranges
between $60 to $140 billion each year.
This translates into a loss of tax revenues to the state in excess of $3
billion every year.
This loss of funds also impacts healthcare.
People who are paid in cash or in the underground economy almost never
have any health benefits. As a result they rely on public hospitals for
their care, adding to the burden on a system already overwhelmed.
As interesting as it is to throw these big numbers around, though, I have
to ask a question. What is the goal of all this? Why do we really care
about whether people get paid in cash... or pay taxes, or beat out the
government for a few thousand of dollars here and there.
Why do we care if people use the black market, the underground economy or
the barter system to transfer money and value back and forth?
Let's try it this way. When we build a school, what is our goal? Is it to
save money on the construction? Is it to make sure that the contractor
makes the biggest profit possible? Or is it to make sure that we build
the safest and most efficient school for our children?
And, by educating our children, we build a broader, more equitable
community that will offer a better future not only for our children, but
for all of us.
The Underground Economy is not just a revenue problem. The Underground
Economy is a people problem. Many newcomers to this country are forced to
work "off the books" for many reasons. They may not have legal status or
social security cards. They may lack work skills. They may lack language
skills or an understanding of their rights in this country as working
They may think it's better to be paid cash and avoid taxation forgetting
that they will be paid less wages for the same work, with no benefits.
Miguel Ortiz was just such a victim. A native of Mexico, he was working
for a non-union roofing company in San Francisco. Miguel dreamed of
buying his fiancÉ a wedding ring and even buying a house.
Instead he paid with his life. Using a rope for safety equipment, he fell
40 feet through a decaying roof and was killed instantly. Although the
contractor was ultimately indicated, it was too late.
Like most underground economy businesses, the roofing company had been
cited many times for safety and wage violations.
Unfortunately, there are so many violations, only a few companies are
cited, shut down or indicted. We should not tolerate one death. Miguel
Ortiz should not have died.
Every person who is paid in the Underground Economy is a victim, whether
they know it or not. They are a victim of unscrupulous employers who
freely take advantage of workers who have few choices. They are victims
of a dead end economy that creates jobs with no future, with no
insurance, workers comp, unemployment benefits, nothing.
When they need assistance they have no choice except welfare and public
A study was completed in 1999 by the University of Nevada--Las Vegas that
really highlights the hidden costs of the Underground Economy. The Las
Vegas study looked at the University Medical Center in Clark County,
which includes the city of Las Vegas.
What they found is startling!
They found that when workers do not receive fair wages and fail to have
health insurance, then those workers have no choice but to use public
medical facilities. People get sick and get hurt, whether they have
health care insurance or not. The impact on the Medical Center was huge.
In 1997 alone, extra costs to the hospital for indigent care and
emergency room assistance were $65.5 million!
There is a crisis in health care in this country right now that is
closing smaller hospitals all over the nation. Even large hospitals are
struggling with costs.
Without question, much of this problem is generated by the side-effects
of the Underground Economy and the tragic inequities that it creates.
I asked earlier what our real goal is in combating the Underground
I believe that our goal is to continue to build a strong, fair, and
equitable community that offers benefits and opportunity to every citizen
who lives there.
To do that, workers must be paid fair wages. Workers must have access to
employer funded medical and health care.
Workers must be afforded the basic legal protections of job safety and
benefits. None of that happens in the Underground Economy.
Worse yet, this impacts disproportionately on minorities, particularly
immigrants who are new to the state. They are the easiest group to take
advantage of because of language barriers and unfamiliarity with our
Many unscrupulous contractors in residential construction and home
improvements victimize this group, paying them inadequate wages and no
Our battle against the Underground Economy is not just about money.
When you enforce the laws to defeat this evil it helps increase public
But what you do as enforcement agencies ultimately helps ordinary people
escape from a modern version of slavery!
What you do contributes to the building of better communities throughout
Every business, public and private agency that commits to the defeat of
the Underground Economy contributes to the future of our great state.
Every business and agency who winks at the problem or worse, ignores it,
adds to human suffering and public loss.
Unions know what it means to fight for fair wages and benefits. That's
what we do everyday.
We also know that there will always be those in our society who would use
or let's be honest about it...virtual slave labor...given the chance.
We share your determination to end the suffering caused by the
We pledge our continued support to help you win the battle against the
abuse of our state's workers.