Risky business: Underground economy booming during COVID pandemic – Windsor Star

Any sense of guilt or fear has long ago fallen away like the long locks Peter snips for one of the basement haircuts he’s performed during the COVID-19 lockdowns.
In the span of nine months, Peter has gone from a sense of communal support by sitting on the sidelines for the duration of the first lockdown to wielding his scissors in the underground economy as an act of frustrated rebellion against measures he calls neither effective nor equitable.
(Given the nature of this story, pseudonyms have been used for some sources’ first names, including Peter.)
“I’m absolutely going to go back to doing it; me and 99.9 per cent of all barbers,” said Peter after the Ontario government recently announced a third lockdown in 12 months. “People have had enough, even the fear of getting caught has gone.
“They’re (the province) doing it just so they can create the illusion that they’re actually doing something. It’s not a real lockdown, they’re only locking down some businesses.
“It’s about survival for many of us now.”
Peter said the financial and mental toll of a third lockdown has been the tipping point for many of his colleagues in barbering who hadn’t previously participated in the underground economy.
His clientele ranges from health-care professionals to factory workers to legal/law enforcement professionals.
Peter admitted he was nervous performing his first illicit haircut just before Christmas and disguised himself as a repairman.
“I resisted all the requests for a long time, but a lot of people were in a bad place mentally,” he said. “It wasn’t so much a haircut. Many of them just needed to see someone. It’s amazing what people will tell their barbers.
“We’re going to see a lot of mental health issues emerge from this pandemic.”
According to a global Ipsos survey for the World Economic Forum released April 12, about 45 per cent of adults say their emotional and mental health has worsened since the beginning of the pandemic.
In the same poll, 40 per cent of Canadians said they expect it will take more than a year to return to normal, while eight per cent think it never will.
Anti-lockdown rallies occurred throughout much of the pandemic in Windsor-Essex, with one of the largest happening on the riverfront last Saturday.
Peter said he wears a mask and gloves while cutting hair and sanitizes his tools and his work environment. He disposes of his PPE after each cut and doesn’t do beards.
He’s no longer nervous about offering the mobile service, and apparently, neither is his clientele in asking for it.
“As soon as the rumour of a third shutdown came, my phone began going insane,” said Peter, who travels around Essex County Tuesday through Fridays doing home haircuts.
“It’s easier for people to go anti-lockdown this time. People aren’t trusting in the government anymore.”
He said for many working in the underground economy, their patience ran out during the second lockdown when large box stores scooped up volumes of new business while the province forced small businesses, service industries and restaurants to close their doors.
The rules have since tightened on box stores, but the damage was done and the shifting sets of rules that have followed have only further eroded some small business owners’ confidence in the government’s ability to navigate the pandemic.
“We’d invested in our businesses to operate safely, but having two people in my shop at a time getting a haircut is more dangerous than hundreds of people milling about Walmart or Costco?” asked Peter, who said his shop has had no COVID cases connected to it. “It makes no sense.”
Barbers aren’t the only profession doing a roaring trade in the underground economy.
Women’s hair salons and personal grooming are also seeing growing demand.
With the carrousel of closures and openings, some stylists have taken to installing equipment that will allow for them to continue business in their basements. Like barbers, some hairdressers commute to client’s homes.
Gyms may have been closed for most of the past 12 months, but some have quietly operated illicitly. Word of mouth about the selection of classes offered can be found by the inquisitive, while some operators are bold enough to post class schedules online.
There are also group workouts going on in basements that are well stocked with home gym equipment. The backorders for exercise equipment can reach into many months.
Aside from a Leamington restaurant that has continued to remain open for inside service — and has had its liquor licence suspended as a result — home-based food businesses have also exploded. A look at the pages on Facebook or Kijiji offers a buffet of choices.
With scores of workers idled by the pandemic, they’ve been offering their vehicles to deliver products for businesses on a cash basis only.
Windsor-Essex Regional Chamber of Commerce CEO/president Rakesh Naidu said the underground economy shifts the financial burdens in society.
It creates an unfair playing field and chokes off tax revenue that helps pay for the social programs Canadians benefit from.
“The underground economy has a cost for all taxpayers,” Naidu said. “COVID has given it more life.
“In some cases, it’s forced legitimate businesses to operate in an underground manner.
“It’s definitely increasing in activity and it’s increasing the risk for businesses to grow in the future.”
Though technically not operating underground, some area businesses have opted to remain open illicitly despite the lockdown.
Several have joined a national group of small and independent business owners called “We Are All Essential.”
The organization offers advice and help on how to operate and fend off legal challenges.
The national website (weareallessential.ca) has a list of members’ businesses in cities across Canada, along with their current operating status.
There are headings for Windsor, Tecumseh, Leamington, Harrow, Essex, Belle River and Kingsville with the services offered and whether they remain open.
A number of local establishments on the site are listed as open or taking appointments.
Naidu said the issue of opening or adhering to lockdown rules divides the business community.
“I’ve heard more anger from the business community about those choosing to open while others try to follow the rules than I’ve heard about the underground economy,” Naidu said.
The Windsor-Essex County Health Unit said they leave it to police to enforce the various health-related orders issued to address the underground economy.
“The Windsor Police Service has not laid any charges or issued any warnings with respect to the price-gouging legislation or any underground economy,” wrote Windsor Police public information officer Darius Goze in an email response.
According to Statistics Canada, the underground economy was valued at $61 billion in 2018, up from $36 billion in 2008.
It’s hovered between 2.2 and 2.9 per cent of Canada’s GDP from 1992 to 2018, the most recent numbers available for the underground economy.
A 2017 study by Statistics Canada, using 2014 figures, estimated a shortfall of $6.5-billion in personal income tax due to the underground economy. That represents nearly five per cent of total personal income tax paid for 2014.
Those figures don’t include monies lost on unpaid GST.
The traditional backbone of the underground economy has been the construction industry (26.2 per cent), retail trade (12.3), finance, insurance, real estate, rental and housing income, holding companies (10.3) and food service (9.1).
While lower prices have always been the driving force of the underground economy, the lack of access to tradespeople and services during lockdowns has also prompted more consumers to go underground.
“Just in the past year I’d say it’s grown 30 to 40 per cent,” said Joe, a local business owner in the construction supply industry. “It’s huge. I’ve never seen it this bad.
“I have customers come into the store and ask me if I’ll do cash jobs.
“These are jobs that are thousands of dollars. That tells you how much money is out there in the community.”
Joe bases his estimate on the growth of the underground economy on his sales volume, what his tradespeople and business colleagues tell him and the availability of independent contractors.
“There’s so much work out there, you have to have jobs with companies on the books to show a source of income,” said Ray, an independent tradesman in the building industry.
“You can’t have all this cash show up in your bank account without a legitimate income source to explain it.”
Though Joe wants no part of the underground economy, it’s existence has had a ripple effect on his business.
It’s a struggle to find labour and several firms in his field have had to alter their business model.
“My labour costs have gone through the roof,” Joe said. “There’s not enough installers, so it’s supply and demand.
“There’s also been a shift where a lot of businesses have become just product suppliers and gotten out of installations. Customers get guys to do it on the side for cash.”
Joe added with so many cash jobs available, independent sub-contractors can also avoid the Workers Safety Insurance Board premiums they must pay to work for legitimate businesses worsening the labour shortage.
“It (the underground economy) is worse because COVID has created an opportunity to make even more money,” Joe said.
“Some guys have been taking CERB (Canada Emergency Response Benefit) and working full-time under the table. More and more, everyone wants to pay cash.
“It comes up so often and now people are casual in talking openly about it.”
Ben, another construction tradesman, said there are few days when he isn’t offered cash jobs.
“I could easily make an extra $3,000 per month off the books right now if I chose to,” said Ben, who has remained employed throughout the last year and opted to pass on underground work for family health reasons.
He said initially there was a hesitance to do underground jobs among workers because so little was known about the COVID-19 virus and consumers were reluctant to have people in their homes.
That’s no longer the case.
“People are loosening up a bit now,” Ben said, noting the makeup of the customer base touches all segments of society.
“The younger trades guys will do it more than the older guys. Customers are definitely more interested in cash jobs again.”
Consumers are still chiefly after a bargain, but he said many are also entering the underground economy for more than financial reasons.
“Definitely not being able to find people to do the job is a reason more people are doing it,” Ben said. “People are getting desperate for workers, but cash is still the main reason for people doing it.”
University of Windsor Odette Business School professor Francine Schlosser said the foundation of the underground economy starts with one thing.
“Nobody thinks what they’re doing is wrong,” Schlosser said.
“Whether it’s ‘I already pay a lot of tax,’ ‘the government wastes the money’ or ‘I just need this job and I won’t be able to compete for a project unless I cut the tax part out,’ the independent economy exists because we always have a reason for justification.”
Schlosser said consumers feel they can walk away with a clean conscience because they’re not responsible for submitting the tax to the government.
“They feel ‘I’m not wrong,’ because it’s their choice on delivering it and ‘I already pay a ton of taxes,’ ” Schlosser said. “The risk they’re taking is in safety, especially in renovations.”
Schlosser added another worrisome aspect of the underground economy is the impact on immigrants and vulnerable populations.
The growing number of international students in Canada and their desire to stay working after graduation has made it difficult to track them unless they hand in an exit visa when they depart.
“We don’t know how many are staying and they often are pushed into the underground economy along with migrant workers,” Schlosser said. “Undocumented workers, it’s just not a U.S. problem. It just looks different in Canada.
“It’s about vulnerable populations forced into the underground economy with no health care, low compensation and afraid to talk to the police.”
Naidu said it’s hard for authorities to track the underground economy and the emergence of crypto currency isn’t making it any easier.
He added the inability to access services during lockdown has really fuelled the growth of the underground economy.
“More people are looking for options,” Naidu said. “It’s become direct competition for legitimate businesses.
“Legitimate business are doing all they have to do and still being undercut.
“The more businesses and operators become desperate to find revenue, the more they turn to desperate solutions. For some it’s about survival.”
In the calculation involving health and legal risks versus financial ruin, the equation seems to be tipping towards the latter.
“Some think a service is badly need and it’s not wrong to offer it,” Naidu said. “Some people feel they’re trying to help. Some think law enforcement have bigger fish to fry and feel they’re under the radar.
“What is worrisome is what’s going to be the impact? We won’t know until after the pandemic.”
dwaddell@postmedia.com
twitter.com/winstarwaddell
Going underground
Estimated value of the underground economy in Canada:
2008 — $36 billion
2018 — $61 billion
Source: Statistics Canada
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