Shadow work is different from the black market. Although both are illegal, shadow work is part of the shadow economy. The activity is legal, but the income is not declared. The black market refers to the underground economy, which includes illegal activities generating income that is not declared to the government.
The shadow economy, which includes shadow work and criminal activities, operates under the shadow of the formal economy. Many transactions, especially monetary ones, are not recorded. The government cannot tax money made in the shadow economy since it is not reported.
The term shadow economy refers to all economic activities that take place outside of a country’s official economy. These are often illegal activities, which can take place on the black market, or legal activities carried out illegally, such as working under the table.
The shadow economy has several negative impacts on society. The government normally taxes workers’ wages and invests this money in roads, health and social services, employment insurance, culture, education and more. Since the government does not control or monitor the shadow economy, taxing it is not possible. This means that the government cannot invest this tax revenue in the country’s key sectors.
In 2016, an estimated $51.6 billion in Canadian income was generated through undeclared work, meaning work done illegally that could be done legally. This money was not taxed by the government, so it could not be invested in services for Canadians.
The shadow economy also leads to fewer jobs available on the labour market. In 2014 in the United States, it was estimated that 8 million of the 11 million illegal immigrant workers were working in the shadow economy. These jobs could be filled by legal employees.
Immigration is when a person settles in a new country (host country) temporarily or permanently.
Normally, employees have some financial support, since they contribute to social services through their employers. They can receive income in the event of parental leave, unemployment or an accident. The government implements these social benefits to protect its citizens.
However, these benefits do not exist in the shadow economy since the government has no power over it. Employers save many thousands of dollars by not offering workers any benefits.
Unlike a legal employee, an injured shadow employee who can no longer work does not get any financial compensation. Illegal employees have no job security, since there are no laws protecting them if they lose their job.
Companies that hire illegal employees do not have to pay the minimum wage or comply with working conditions that apply to legal jobs (maximum number of hours per day, sick leave, parental leave or employment insurance, etc.). Companies may threaten to fire employees who demand better conditions, taking advantage of the fact that the government has no control over the shadow economy.
It should be noted that for some countries, these figures are national averages. For example, each Canadian province and territory has its own minimum wage, as does each US state. But some countries, such as Ireland, have a single minimum wage for the entire country.
Some industries are more affected by the shadow economy than others. In Canada, the residential construction industry (26.6%) by far has the most undeclared workers, followed by retail (13.5%) and the hospitality and food service industries (12.1%). These three industries account for more than half of the country’s shadow economy.
To better understand the extent of the shadow economy, the table below shows the different everyday activities considered shadow working. Each case is an example of shadow working, meaning that the work is legal but the wages are not reported to the government. In the eyes of the law, this income does not exist.
| Main Industries Impacted by the Shadow Economy and Examples of Shadow Activities | ||
|---|---|---|
| Industry | Type of work | Shadow economy activity |
| Residential construction | Construction or renovation of a residence | Un charpentier-menuisier refait une toiture et un patio, installe de nouvelles fenêtres, etc. Une peintre peint un salon et une cuisine. |
| Retail | Selling products in a convenience store, grocery store or other big box store, such as Walmart | The actual total sales are $1000, but the employer only reports $700 to the government. |
| Hospitality and food services | Hospitality, such as Airbnb, and food services. |
Not declaring income made from providing accommodations or tips made working in a restaurant. |
| Domestic work | Tasks performed in another person's home. | Babysitting, cleaning, gardening or caring for the elderly, etc. |
| Fruit and vegetable farming | Growing and selling fruit and vegetables, working on farms, maintaining equipment. | Fruits and vegetable stands, seasonal employees working on farms or preparing produce for sale. |
Important nuance
It is important to understand that all these tasks can be done legally. The work is only considered part of the shadow economy if the person does not declare their earned money to the government.
Minors also have to file a tax return, but...
Anyone with a social insurance number, regardless of age, should file a tax return each year. In Canada and Quebec, anyone who has an income under a certain amount, known as non-taxable income, does not have to pay taxes.
In Canada, if your annual income is less than $13,229, you will not pay any taxes. In Quebec, if your annual income is less than $15,532, you will not pay any taxes. Canadians pay both federal and provincial taxes.
Young teenagers and taxes
Young adolescents often perform low-paying work such as babysitting and lawn mowing. Even if they do not declare their income like they should, they rarely make more than the non-taxable income amount under Canadian and Quebec laws. This is why money made by teenagers is not considered part of the shadow economy.
For babysitting to be considered shadow work, the income earned must exceed $13,229 (basic personal amount in 2020) in Canada but not be reported to the federal or provincial governments.
Older teenagers and taxes
By 15, teenagers are allowed to work in restaurants, stores and elsewhere as employees. They usually make more money than they did mowing lawns or babysitting. In this case, they have to file a tax return (do their taxes).
A teenager working for minimum wage would have to work more than 1010 hours per year to have to pay taxes.
Some companies hire illegal immigrant workers, meaning immigrants who are undocumented or unauthorized to stay in the country where they currently live. They are also called undocumented migrants. Employers hire them because they are cheap labour.
Even though this situation is very difficult for undocumented workers, they often choose this type of work because it is one of the only ways they can make money. Since they are not technically supposed to be in the country, they cannot legally apply for a job because this would allow the government to find them and deport them.
An immigrant is a person who settles in a new country, or host country, temporarily or permanently after leaving their home country.
Undocumented migrants are people living illegally in a foreign country without identity documents (ID) or residence permits.
In addition to the table shown above, undocumented workers mainly find domestic work or jobs in fruit and vegetable farming.