unofficial economy: There are lies, damn lies and GDP statistics, The

Teaching Business & Economics, Autumn 2003 by Thomas, Rob

Based on this approach, the literature identifies a fourfold classification of activities that fall within the shadow or unofficial economy: household/unrecorded; informal; irregular/unreported; criminal/illegal/illicit[5].

Household/unrecorded activities produce goods and services that are consumed within the household - cooking, cleaning, looking after the children, DIY and so forth. Initially, they do not seem to meet the criteria: they are not subject to a direct market transaction; nor do they normally contravene a country's institutional rules.

However, it is generally accepted that household activities are 'economic' and so should be estimated for inclusion in the national accounts[6]. Less obviously, such activities can also be seen as subject to institutional rules where these rules are interpreted to include 'social conventions'. For example, the growth of women working has seen the acceptance of transferring childcare from household production to market provision.

The informal sector ".. generally consists of small-scale producers and their employees, together with the self-employed.. [A] large number of those active in the informal sector work at home .."[7]. These so-called microenterprises[8] are not operating illegally because they lie outside the institutional rules and their output is sold in the marketplace.

It is more difficult to comprehend such microenterprises in developed economies because such countries have rules to regulate all businesses. In developing countries where rules are less encompassing, the informal sector can be more easily identified: such as, the surplus produce of a household farm being taken to market for sale; or, part of the house being used as a machine shop to produce clothing or engineered products[9].

The irregular/unreported sector comprises firms (of all sizes) which produce outputs that are legal but which seek, in part or in whole, to evade the legal requirements of operating. The discussion in the literature tends to emphasize evasion of direct and/or indirect taxation but it can be evasion of other requirements such as health and safety, minimum wage, and planning permission. Some of the literature includes social security fraud in this classification[10].

Criminal/illegal/illicit activities are distinguished from the other three classifications in that the output (and usually the method of production) is illegal - burglary, drugs, pornography, etc. As both the irregular sector and criminal sectors involve illegal actions, the line drawn between them can sometimes be indistinct.

That leaves the other terms listed above to be defined in relation to some or all of these categories. 'Shadow' and 'unofficial' cover all the classifications whilst 'clandestine', 'hidden', 'subterranean' and 'underground' relate more to the last two categories (irregular and criminal). The 'black economy' remains open to interpretation, with some defining it in respect of illegal activities and with others equating it with 'black market', thereby including the irregular sector to some extent.