If you read the news you learn that hardly anyone in America has any money, except for a few rich overlords. If you go to the mall you can’t find a parking space because the place is so clogged with BMW and Mercedes SUVs; if you want to interview a lower-middle class person you have to persuade them to hang up their iPhone. Economists Anat Bracha and Mary A. Burke at the Federal Reserve Bank of Boston chip away at this discrepancy with “Informal Work Activity in the United States: Evidence from Survey Responses.” It turns out that people whom the BLS characterizes as “unemployed” actually perform paid work about 15 hours per month.
The authors win this month’s Mark Twain* Prize for Understatement: “By informal work we refer to temporary or occasional side jobs from which earnings are presumably not reported in full to the Internal Revenue Service…”
This paper may be worth reading in conjunction with The Redistribution Recession: How Labor Market Distortions Contracted the Economy
* Twain said: “James Ross Clemens, a cousin of mine, was seriously ill two or three weeks ago in London, but is well now. The report of my illness grew out of his illness; the report of my death was an exaggeration.” (often misquoted as “The reports of my death are greatly exaggerated.”)
I lived in Sweden in 1976. There was a big scandal that year because Astrid Lindgren, the lady who wrote the Pipi Longstocking stories, had to pay 102% tax.
I’m familiar with a 30-year old, black female single-mom to two illegitimate sons (ages 5 & 7) from two different absentee fathers. This woman has worked full-time since high-school in the fast food industry and is now a shift manager earning $12.50 per hour or $26K per year. Her approximate monthly government assistance is: $600 rent + $800 medicaid + $400 EBT + $1000 day care; + $3000 annual EITC = $36K per year. Her government aid more than doubles her annual income. In fact, her government aid is 138% of her annual income from work. Marriage would likely eliminate much of that government aid. This woman doesn’t need a husband; she’s already married…to Uncle Sam.
Disclaimer: I’m not advocating that this aid is unjustified or unnecessary.
I recently reduced my weekly work schedule (and salary) by 20% and now enjoy every Friday off w/o pay. My effective tax rate including FICA is about 25%. So, while I enjoy an extra 8 hours off every week, I’m only losing 6 hours of net pay.
The people working in the informal economy are mostly illegal aliens doing landscaping work for $10/hr cash and such. Except for the few who are major drug dealers, they are not the ones clogging the mall parking lot with their BMWs.
An iPhone is an example of an “affordable luxury”, like a Starbucks latte or a woman getting her nails done. If you are a poor person, you may not own a car, but you wear really nice threads and carry an iPhone. Or you might live in a slum but drive a really nice car – it’s all part of cutting what the Italians call a “bella figura” – making a fine impression. You are never going to have the income to buy a house in Wellesley but you can own the same phone that Wellesleyians have.
There is also the “Millionaire Next Door” phenomenon. The guy who REALLY has millions of $ is probably using last year’s Samsung phone and drives a Honda – he has nothing to prove and they way he got all those millions was by being really cheap to begin with.