Question
What social, political, and social economic conditions might signal the existence of a large underground economy, and why should managers pay heeds to such signals?
The underground economy represents income earned under the table and off the books. It can include legal and illegal, or black market, goods including drug sales, money laundering and warehouse banking schemes (Brainly, Feb.24,2023).
Managers should pay heed to social, political, and economic conditions that might signal the existence of a large underground economy in order for managers to intervene by creating job opportunities to address the issues of high levels of unemployment or underemployment to avoid people turning to illegal activities to make ends meet (Brainly, Feb.24, 2023).
In some regions of the world, low levels of trust in government institutions, couple with high degree of corruption, which can discourage people from participating in the formal economy.
Also, in an economy where is high taxes, or burdensome regulations that make it difficult for businesses to operate legally and encourage them to underground. Income inequality or poverty, which can make a demand cheap goods and services that are provided by the underground economy. Also, unreported economic activities trends to occur when excessive taxes, regulations, price controls, or State monopolies interfere with market exchanges, and failure to recognize or enforce private property rights and contractual agreements may also encourage underground economic activities (Brainly, Feb. 24, 2023).
The methods used by economist in estimating the size of the underground economy includes voluntary survey and sampling, tax aiding, discrepancies between official and actual labor force, physical input or electricity consumption, monetary approach, and the latent indicator approach.
Transactions made in underground go unreported, therefore they distort the accuracy of key economic measurements. A nation's gross domestic product (GDP) is calculated by totaling personal spending and business sending; the idea of this type of hidden economy, negatively impacts developing countries most (Brainly, Feb. 24, 2023).
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