Underground

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By EDVARD PETTERSSON

Staff Reporter

Luis and Miguel, both from Guatemala, were waiting for work, along with a dozen other men one day last week near the Home Depot parking lot on Sunset Boulevard in Hollywood.

They are hardly strong prospects for a traditional bank. Luis has been in Los Angeles for nine years, and Miguel for three. Both men are jornaleros, or day laborers, and they come to the Home Depot six days a week looking for odd jobs in home improvement and construction.

They are paid almost exclusively in cash, and they pay most of their bills and their rent in cash using money orders only occasionally when cash is not an option. Their daily financial regimen says a lot about how L.A.’s financial underground often skirts traditional banking resources,

“Day laborers tend to live on day-to-day cash basis,” said Abel Valenzuela Jr., associate director of the Center for the Study of Urban Poverty at UCLA. “They have no need for financial institutions because they get paid in cash, they can use money orders to pay their rent, and they use money-wiring services to send cash abroad.”

Besides the estimated 22,000 day laborers in L.A. County, there are roughly 60,000 undocumented domestic workers, according to the Coalition for Humane Immigrant Rights (CHIRLA). The vast majority come from Mexico and Central America.

The actual extent of the participation of undocumented workers in the local economy is anybody’s guess, said Ted Gibson, chief economist with the California Department of Finance.

“By its very nature, it is unknown, and the system is never going to get its arms around it,” Gibson said. “As a practical matter, most of the unreported labor activities are impossible to police because it simply would be too expensive to do so. They tend to person-to-person activities, such as domestic help and small construction jobs.”

Luis and Miguel (not their real names) ask between $8 and $12 an hour for their services, but say they are willing to come down in price when there is little work available. According to a study authored by Valenzuela, a day laborer makes, on average, $1,069 during a good month in the summer, which is more than the $920 he would make, before taxes, at minimum wage.

Not all undocumented laborers work off the books. Gibson says a surprisingly large number pay federal and state taxes, using fraudulent Social Security numbers or those belonging to legal relatives.

“The penalty for employers for not paying payroll taxes is swift and severe,” he said. “It was a big surprise, when immigration amnesty went into effect in the late 1980s, that many illegal workers were using the same Social Security number. Of course, we might have noticed earlier that waiters and busboys were reporting wages of $110,000 per year.”

Undocumented workers who hold a legal job typically do not have bank accounts because they lack the proper identification to open one. Hence, they will typically cash their paychecks at a check-cashing operation and pay their bills and rent in cash and money orders.

Angelica Salas, acting director of CHIRLA, says many undocumented workers who fall outside of the mainstream financial system have set up informal money pools for saving and lending purposes. These so-called condinas are a common practice in Mexico, said Salas, and can be found in factories and other workplaces, as well as in neighborhoods in Latino communities in Los Angeles.

The condina system requires participants to make a monthly contribution to a common pot. Each participant gets a random number, which dictates his or her standing in the pool when it comes to loans the lower your number, the more likely you are to be able to get a loan if you want to buy a house or make another large purchase. For the others, the shared pot functions as a savings account.

While the cash economy works for many undocumented workers, Salas sees a number of drawbacks. People who are paid in cash are more easily ripped off by unscrupulous employers, who may pay less than agreed. They are also more frequently the victims of robbery, because they carry large quantities of money or keep it in their homes. And perhaps even more serious, having no track record of their earnings can become an issue when they try to make the transition from illegal to legal immigrant.

“It happens frequently that someone gets approved for immigration but gets hit with a large bill by the IRS for back taxes,” Salas said. “This is one of the several long-term implications of participating exclusively in a cash economy. It is impossible for people who have been paid in cash for many years to prove that they have paid taxes or to qualify for social services, such as health care.”

The IRS has tried to make it easier for undocumented workers to pay taxes by issuing them taxpayer ID numbers. To further encourage use of these numbers, the IRS promises to keep the information supplied to it by undocumented workers confidential from the INS.

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