Hidden Island economy is described
By Steve Myrick
Published: August 28, 2008
Hard data is hard to come by. It's under the surface, though not very far under. No one wants to talk about it much. But an economist who recently studied the Island's underground economy - unreported jobs, wages, barter, and business profits - found that it may be as large as the hotel and restaurant sector, or the retail sector.
By studying data on local wages, sales, and taxes, and comparing the numbers against statewide figures, consultant John Ryan says he was able to make some observations about the scale and nature of the Island's underground economic activity. Mr. Ryan's firm, Development Cycles, specializes in research on housing, economic development, tourism, and agriculture, with a focus on resort communities in the Northeast. His report is included in an economic profile of Martha's Vineyard completed for the Island Plan, at a cost of $8500. The Island Plan is an initiative of the Martha's Vineyard Commission aimed at charting a course for Island development over the next 50 years.
It doesn't add up
In what he calls a conservative estimate, Mr. Ryan's research indicates that for every 100 reported jobs on the Vineyard, there are 16 more that are not reported. For every $100 of reported wages, there is $12 more in "under the table" wages. That represents about 1,200 unreported jobs, and $34 million in unreported wages. The study suggests the underground economy cuts across most sectors of the Island economy, including construction, retail, professional and business services, arts, entertainment and recreation, accommodations, and food services.
There are a number of points in the official data that just don't add up. In looking at seasonal economic cycles, the consultant found that for most of the year, there are roughly 40 percent more employed residents than there are wage-paying local jobs.
This discrepancy suggests a high level of self-employment, contract labor, and unreported work, according to the report.
"The underground economy is not going away and indeed may be growing more rapidly than the reported economy," according to the report. "Leaving aside the issue of lost taxes, the chief significance of the underground economy may be in lost community stability. Workers stay for shorter durations. Since income is often spent elsewhere, the value of that labor does not circulate in the local economy as fully as it might. Residents cannot establish the credit or verify the income needed to purchase homes or borrow for long-term purchases. Though many residents may work under the table for years, the practice promotes focus on a shorter timeframe, with lower investments in capital, training, and skill development."
Another destabilizing effect of the underground economy is that it can create an unfair competitive advantage. If two contractors compete for a job and one of them reports all his workers and pays all necessary taxes, insurance, and licenses, he may be at a distinct disadvantage against a contractor who pays his workers under the table, avoiding those costs.
Big bucks
While the consultant cautions that the lack of reliable data makes all assumptions somewhat suspect, many local business owners have heard anecdotal evidence that the underground economy is a significant part of the island's business climate.
"I suspect it's a much bigger part than anybody realizes," said Sherman Goldstein, owner of the Mansion House. "I don't think it's a terribly good thing."
"You hear about it, but nobody's very open about it," said Wayne Guyther, owner of HN Hinckley and Sons, a lumber and building materials dealer. "I'm sure it's going on. The underground economy is everywhere, not just on the Vineyard."
Both Mr. Goldstein and Mr. Guyther rebut the perception that much of the underground economy is rooted in foreign workers who live here illegally. The consultant's economic data also shows that may be a relatively small sector.
In analyzing employees, wages, and revenue across several business sectors, Mr. Ryan said in areas with a large number of unreported jobs, it might be expected that payroll would be a smaller percentage of sales than comparable businesses elsewhere in Massachusetts. In other words, a business that is not reporting all of its employees might be expected to show a higher percentage of sales per employee, because those unreported employees are still bringing in revenue. In fact, Mr. Ryan found the reverse was true.
"Especially in areas like accommodation and food services, and retail, payroll as a percentage of sales was higher and sales per employee lower than for the state as a whole. If employers in these areas are hiring a higher-than-usual number of unreported employees, they are not reporting the revenue either," the report says.
Another large factor in the underground economy is the informal practice of renting out homes to summer visitors. The report estimates that short-term rentals add "$60-$100 million/year in largely unreported income, much of which accrues to non-residents."
"We need to be very careful to note that this is not a result of undocumented workers on the Island," said Mr. Goldstein. "There are scores of businesses which operate on a cash basis. They have very, very little accountability. When that dollar that they take in is spent, it continues through the economy, but it's not paying for infrastructure services, it's not paying employee benefits."
