The real unemployment rate and Europe's underground economy

While the official unemployment figures continue to hover around 9 percent in the U.S., the real unemployment is rate is closer to 16 percent. In Europe, however, real unemployment figures are much lower than actual figures. Why?

By , Guest blogger

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    Demonstrators protest against job cuts in central London. Many of the demonstrators had marched from Jarrow in north east England, recreating a 1936 protest march against unemployment. While the official unemployment figures in some European countries are higher than in the US, the actual unemployment numbers are much lower because of the region's thriving black market economy.
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While the official unemployment figures continue to hover around 9% in the U.S., the real unemployment is rate is closer to 16% when you factor in all those who are unemployed or significantly underemployed.

So when we heard while I was in Spain last last week with my graduate students that the official unemployment rate there was 20% my immediate question was, "So high is the actual unemployment rate?"

I was expecting to hear that it was 25% or even 30%.

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"Oh, it is much lower than 20%," was the answer we heard.

What? Lower?

"Yes.  We have a large black market that does not get factored in with our employment data.  Many who are officially unemployed as working in the underground economy for cash," the economic expert we heard from explained to us.

The underground economy is, in fact, flourishing around the globe.

In a recent article in Foreign Policy, Robert Neuwirth investigates the $10 trillion global underground economy, which is also becoming known as System D.  Neuwirth writes:

"By 2020, the OECD projects, two-thirds of the workers of the world will be employed in System D. There's no multinational, no Daddy Warbucks or Bill Gates, no government that can rival that level of job creation. Given its size, it makes no sense to talk of development, growth, sustainability, or globalization without reckoning with System D."

So the fastest growing part of the world economy is that which is outside the reach of the measurement and the control of central governments.
We have been told time and time again that it will be entrepreneurs who will pull us out of this ongoing recession.  And many of us have argued that for them to succeed at this, we need government to get out of their way.

It seems that a growing number of entrepreneurs around the globe are not waiting for the government to enact some major policy to assist them, or even for the government to get out of their way.  They are building an economic force outside of the controlled economy that is fast becoming the economic super power, according to Neuwirth's analysis.

Ben Cunningham, who sent the Foreign Policy article to me, reminded me that Milton Friedman always said the one saving grace of government is its incompetence at regulating.

So perhaps help is already on its way for our economy. 
Let's just hope that as government tries to do more and more to "fix" the economy that their level of incompetence grows with each new economic initiative they throw at us.

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