L.A.'s underground economy: off-the-books workforce proliferating in downturn.

The fastest growing sector of L.A.'s workforce can be found standing on 11th Street in Santa Monica each weekday morning.

A few dozen men, almost exclusively Latino, line the block between Colorado Avenue and Olympic Boulevard near a building materials store. They eye passing cars in the hopes of getting picked up by contractors, business owners or homeowners on the lookout for laborers willing to work for $10 an hour.

"People just know to drive down here," said a 20-something named Eric, who wouldn't give his last name. "It's like an office for us."

The 1.1 million "informal workers," both U.S. citizens and illegal immigrants paid in cash for a day's work, account for 14 percent of the total L.A. County workforce, according to the Los Angeles Economic Report released last week by the Anderson School at UCLA. The figures represent a marked increase from 1989, when the county's 650,000 informal sector workers made up 9 percent of the workforce.

The pattern runs counter to the nation as a whole, where informal sector workers make up less than 1 percent of the economy, down from almost 6 percent in 1989.

"One word -- immigration," Christopher Thornberg, senior economist at the Anderson School and the author of the report, said in explaining the jump in off-the-books workers. "We have the highest percentage of people of any major city without a high school degree. That's what's driving it."

While L.A. County's population grew by 7 percent between 1990 and 2000, the county's population of 4.2 million Hispanics, accounting for about 44 percent of total population, grew by more than 28 percent during the same period.

Meanwhile, more than 585,000 legal immigrants settled in the county between 1991 and 1998, according to the California Department of Finance (with many more coming in illegally). With the economic slowdown at hand, few of them are moving to other parts of the country.

"When there are not jobs in the rest of the country, they stay here," said Thornberg.

Job gains, losses

The rise in informal sector workers also serves as an explanation for an L.A. County labor market that has seen both falling employment and unemployment rates.

Since May, the county unemployment rate, the highest in the five-county area, has fallen to 6.5 percent from 7 percent, but it is still off the recent low of 5 percent posted early last year. Meanwhile, L.A. County's total employment has fallen since May 2001 more than 1 percent, or by about 48,000 jobs, to less than 4.1 million.

The falling unemployment rate "is primarily due to the fact that informal employment increased rapidly over the past few months," the Anderson report said, while employment declines could be traced to ongoing exposure in the tech sector and the effect of a threatened strike in the movie industry last year.

As the economy heads toward recovery, the Anderson forecast projects that county payroll employment will increase gradually throughout the next two years, driven by the services and trade industries and hitting the 4.2-million level by late 2004.

L.A.'s huge core of low-income workers not receiving benefits, combined with the billions of dollars in uncollected payroll taxes, have significant ramifications for the economy. Among them is the additional strain that's placed on public programs, such as health care.

"If you calculate the fees and taxes on sales that aren't being recorded, that's a huge dollar loss for the city, county and state," said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County.

Yet the growth of informal workers in L.A. is not universally negative.

"When we leave that sector out," said Daniel Flaming, president of Economic Roundtable, whose non-profit organization specializes in labor market analysis, "the economy is essentially stagnant."

As a result, businesses looking to cut costs have ample opportunity to find people willing to work off the books for low wages and without benefits. Kyser pointed out that low vacancy rates at warehouses and other industrial sites is a signal of heavy employment by off-the-books workers. "Open the doors to one of those buildings, and it's a beehive of activity," he said.

A report last spring by the L.A.-based Economic Roundtable concluded that those businesses in construction and the broad "miscellaneous retail" category (predominately retail and specialty light manufacturing) employ 11 percent and 9 percent, respectively, of informal sector workers. That report estimated L.A.'s informal sector at more than 800,000.

Some workers who have formally gained full-time employment still do informal work in order to make ends meet, according to Raul Anorve, executive director of L.A.-based Institute of Popular Education of Southern California, whose four offices train and find jobs for day laborers. More than 10 percent of the visitors to its West Los Angeles office during the weekend have full-time jobs but are looking to make extra cash.

With low-skilled, off-the-books labor less susceptible to market swings, the size of L.A.'s underground economy is unlikely to change much with the economic slowdown, according to Thornberg.

Anorve notes that his office, which serves about 400 workers daily, could find jobs for about 80 percent of its constituents in the late '90s. Today, the number is less than 30 percent, causing workers to be more willing to accept a lower wage.

"We used to get work almost every day," said one man on 11th Street who did not give his name. "Now, we're lucky to get work three days a week."