After you have studied Reading Between the Lines on answer the following questions.

a. In what ways do employers break laws in the underground labor market described in the news article?

b. How does a tax on labor change the equilibrium level of employment and the wage rate paid by employers?

c. How does a minimum wage law make tax evasion more likely to occur?

d. How can the minimum wage law and tax law be enforced more effectively?

e. Use the analysis of a market for an illegal good to explain how stiffer penalties would change the quantity of labor traded and change the wage rate in the underground economy.

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READING BETWEEN THE LINES Government Actions in Labor Markets Bipartisan Plan to Crack Down on California's Underground Economy The Mercury News May 3, 2010 California has an underground economy that has been estimated to generate between $60 billion and $140 billion a year. This represents a tax loss to California of between $3 billion and $6 billion. ... The underground economy in construction and other industries includes employers who pay cash under the table (often under the minimum wage); do not withhold payroll or other taxes; do not provide workers' compensation protection; and often do not maintain safe working conditions....