Rise of UnderGround Economy and Pay Freezes Picture of New Normal in Europe

The New Normal which marked low to negative economic growth,high unemployment in developed countries of the West began after the Lehman Crash in 2008. It has led to a new paradigm in employment and jobs, with informal jobs showing exponential growth. As people laid off from their previous organizations fail to find new jobs for long periods of time, they have been turning to unorganized sectors to survive. Note informal sector jobs are nothing new for developing countries where large sections of the population work in the informal sector . For example in India, it has been estimated that almost 95% of the jobs are in the unorganized sector. But for developed countries it is a new phenomenon.

 Financial Jobs are facing a carnage with banks cutting down left , right and centre. The outlook in the Financial Industry is that of a Depression even as the world economy faces some hiccups from the European Debt Crisis . Real Estate Markets have also been affected & distorted globally by bad regulation , low interest rates etc. Along with construction and real estate companies , financial companies who make the real estate mortgages are the worst hit in general. The financial job meltdown continues around the world with Bank of America which made disastrous acquisitions and is currently a trillion dollar basket case ready to cut more divisions and jobs if financial conditions worsen. Bofa has already cut thousands of jobs to repair its joke of a balance sheet. London and French Banks are selling divisions and shedding jobs to become more leaner and survive till the government keeps them on life support. Major financial centers of London,New York are the worst hit in terms of financial job losses.

From NYT

As Spain’s recession deepens, more workers like Juan are being shunted into an underground economy that amounts to as much as a fifth of Spain’s gross domestic product, according to some estimates, with broad implications as the country tries to revive itself, reform its labor market and keep at bay the kind of wrenching crisis that now threatens to push Greece out of the euro zone.This underground economy growth (because taxes and regulation are absent) is leading to a massive deflation in wages for low skill jobs. Lack of minimum wages, regulations has made these workers work for a fraction of the earnings of the regular jobs. Even the companies are getting hurt as their services are now being provided at a much cheaper rate. Global labor arbitrage and massive oversupply of labor means that this trend is going to only increase .

Many of these undeclared workers, in fact, compete directly with their former employers, undercutting official rates for services like delivery and electronics repair work by as much as 50 percent. Juan, for instance, now earns about half the salary of €800 a month he once made.Many of those interviewed said they had no qualms about cheating the Spanish treasury, arguing that avoiding social security and other tax payments is their only way to make ends meet.

The high flying sectors too are facing issues with the financial sector in London seeing pay freezes for an astounding 92% of the employees and bonuses being cut in half. The Financial sector has been facing the brunt of the recent crisis with investment banks firing thousands of workers . The massive surplus in the financial sector implies that this industry will not see a decent wage increase in the near future as thousands with financial skills seek to get a job.

From ET

Pay was frozen in more than nine out of 10 types of investment banking jobs in the London financial district over the past year, according to research published today by financial services recruitment firm Astbury Marsden.

The research, which looked at 142 different investment banking functions, showed there was no increase in the average basic salary in 92 per cent of jobs in the year to end-March.