More Americans Work in the Underground Economy

When Kevin Kalmes received a foreclosure notice on her home after being unemployed for more than two years, she says she started selling the contents of her basement. “Then I just kept the basement sale open, forever, without getting permits,” says Kalmes, 61, who lives in Chicago. She started selling items on behalf of family, friends, and neighbors in what she dubbed the “Little Shop of Hoarders.”

Kalmes is among the 4.8 million Americans—40 percent of all those unemployed—who have been out of work for more than 27 weeks. With her jobless benefits exhausted, Kalmes has entered the informal economy. It includes activities that are illicit—prostitution and drug dealing—and more routine jobs such as working construction for a day for cash, or even walking kids to the bus, as Kalmes does for $2 per child. Added together, economists estimate that the income generated by the underground economy in the U.S. could be $2 trillion.