Last year we suggested growth in the underground economy is likely a key reason workforce participation has fallen so much in the U.S.
Others are starting to also suggest this. Noted author James Surowiecki's New Yorker article The Underground Recovery points out:
Ordinary Americans have gone underground, and, as the recovery continues to limp along, they seem to be doing it more and more.
One indicator is retail sales, which have held up quite well given the high level of unemployment and historcially low workforce participation rate. Key quote:
Bernard Baumohl, an economist at the Economic Outlook Group, estimates that, based on historical patterns, current retail sales are actually what you’d expect if the unemployment rate were around five or six per cent, rather than the 7.6 per cent we’re stuck with. The difference, he argues, probably reflects workers migrating into the shadow economy.
The Washington Post also looks at this topic and cites an academic study on the size of the underground economy:
Is there any hard data on the underground economy? Some. A 2011 by Richard Cebula and Edgar Feige estimated that as much as “18-19 percent of total reportable income is not properly reported to the IRS.” That’s as much as $2 trillion in underground economic activity, with about $500 billion in taxes that aren’t being paid to the government.
For obvious reasons data on the underground economy (also called the informal economy) is hard to come by. But it's becoming increasingly clear this segment of the U.S. economy is growing.