A Study on the Shadow Economy in Barangay 649, Port Area, Baseco, Manila

I. Introduction

The shadow economy is a reality that exists all throughout the world. According to a research by
Medina and Schneider (2018), the shadow economy accounts for about 30.9 percent of gross domestic
product in 157 countries studied from 1991 to 2017. (GDP). While the shadow economy accounts for less
than 20% of GDP in most OECD nations, it accounts for almost 38% and 39% of GDP in Latin America
and Sub-Saharan Africa, respectively.

Furthermore, the definition of shadow economic activity is a point of contention. The shadow
economy is defined by Smith (1994, p. 18) as "market-based production of goods and services, whether
legal or illegal, that escapes detection in official GDP estimates." Dell'Anno (2007) refers to the shadow
economy as the "non-observed economy," which consists of three areas: underground production,
informal production, and illegal production. Meanwhile, according to Schneider (2010), the shadow
economy includes all market-based industrial activities that are purposely hidden from public authorities.

Another topic that is gaining traction among academics is corruption. Corruption may be defined
differently by different writers. "The most popular and simplest definition of corruption is the abuse of
public power for private gain," says one expert (Tanzi, 1998, p. 8). The link between corruption and
economic growth is still a source of debate. While many studies show that corruption has a negative
impact on economic growth (Hodge, Shankar, Rao, & Duhs, 2011; d'Agostino, Dunne, & Pieroni, 2016;
Baklouti & Boujelbene, 2019; Gründler & Potrafke, 2019), others show that corruption can "grease the
wheels" rather than "sand the wheels" in certain countries.

According to the data by The Global Economy, the average value for the Philippines fron 1991 to
2015 was 39.31 percent with a minimum of 28.04 percent in 2015 and a maximum of 45.53 percent in
1993. The latest value from 2015 is 28.04 percent. According to the Labor Force Survey statistics in the
Philippines, 38.3 percent of people employed are in vulnerable jobs. This implies that roughly two out of
every five workers have fewer formal labor arrangements and access to social safety, putting them at
greater risk during a crisis or shock. Technology has rapidly become a crucial component of the
integrated strategy to formalizing the informal sector, referred to as "e-formalization" or "e-formality" in
recent years.

The objective of this study is to provide light on the influence of the shadow economy in the
Philippines, particularly in Barangay 649, Port Area, Baseco, Manila. This study will highlight the study
of the shadow economy, the annual budget of the certain barangay, the residents’ monthly income,
economy category and the nature of business. This will also reflect the growth of economy in the
barangay and its impact to the Philippine economy.

II. Purpose of the Study

The purpose of this research is to establish the economic status of Barangay 649 in Baseco,
Manila. This will comprise the barangay's annual budget, monthly income, and money from the
barangay's shadow economy. This will also show how people deal with the shadow economy that the
barangay have.
III. Scope of the Study

Barangay

The study is held at Barangay 649, Port Area, Baseco, Manila. Manila is the Philippines'
financial and commerce capital. Within the metropolitan region, as well as between the city and
the provinces and other nations, trade thrives. The port of Manila handles the majority of the
Philippines' imports and exports.

Brgy. Annual Budget/Monthly Income

Aside from having a financial plan, the barangay budget also acts as a tool for barangay
authorities to oversee the barangay's growth. Planning and policy, adoption, program and project
execution, financial control, and management information are all based on a well-prepared
barangay budget.

Barangay 649, Baseco Port Area, Manila has an annual estimated budget of Php
49,892,159.00. This serves as a budget for the barangay’s activities, compensation for the
officials, and for the implementation of projects the barangay will be having. Within this budget,
the monthly incomes of the officials are included.

The income of each official is given every three (3) months. Every three months, a
barangay chairman gets Php 45,000 as his income. Meanwhile, barangay councillors get Php
25,000 each, barangay secretary gets Php 20,000 and barangay staff gets Php 15,000.

Entity/Individuals involved in Informal Economy

Independent, self-employed small-scale producers and distributors of products and

services make up the informal economy. The majority of workers in this industry are not
protected by the country's labor laws and regulations. In Barangay 649, there is a population of
59,819 where the working force has a total of 27,364.

Some individuals with informal economy setting have been interviewed by the
researcher. They were asked what category of informal economy they have, the nature of their
business, and their monthly income.

Informal Economy Category

Out of 8 interviewees, 5 of them said that they are in a Gray Economy category and 3 of
them are in the Undergroud Economy. Any lawful but unrecorded and uncontrolled economic activity is
included in the gray economy. When there is a pricing differential between geographic locations, these
transactions usually entail trading opportunities. Meanwhile, the underground economy refers to
economic transactions that are regarded illegal, either because the products or services transferred are
illegal in nature or because the transactions do not meet official reporting standards.

There are some reasons why they are in those categories. One said, “Walang
permanenteng trabaho at kailangan pakainin ang mga anak kaya 24/7 siya nag wowork. Hindi
padin sapat ang kinikita sa pang araw araw. Depende sa kondisyon ng klima ang pag taas at pag
 baba ng kanyan income. Kapag maulan ay wala gaanong benta.” Another said that “Kaylangan
niya mag tinda at lako ng isda dahil yung asawa niya ay na stroke walang pambili ng gamot at
kaylangan ng pagkain sa pang araw araw. Depende sa kondisyon ng klima ang pag taas at pag
baba ng kanyan income. Kapag maulan ay wala gaanong benta.” The other one said “Siya ang
ilaw ng tahanan , kanyang asawa hindi nagtratrabaho at ang mga anak ay maliliit pa. iba sa
anak niya ay hindi nakakapag aral. Maliit ang sinasahod niya araw araw kaya minsan may
iilang araw na wala silang kinakain.” Most of them did not finish school, have health problems,
and do their jobs as a sideline.

On the other hand, there are also reasons why the three persons are in the underground
economy, or doing things that are illegal. One said “Ito nalang yung nakikita niyang way para
mabuhay siya araw araw. Hindi na nag aaral at yung mga magulang din niya ay katulad niya.
Hindi rin siya tinatanggap sa mga trabaho dahil sa background niya at dahil narin sa di
nakapagtapos.” Another told the researchers that “Naging bisyo na nya at na adik na talaga siya
gawin ito. Para sakanya Malaki ang kita dito. Hindi kana aalis kumikita kapa. Hindi na siya
nagpatuloy sa pag aaral. Dati siyang construction worker.” They do this because they were
given the perception that there will be more income if they do this kind of job, and there are no
taxes involved.

Nature of Business, Products or Services

The interviewees give their nature of business, and what products do they sell as well as
the services that they offer. Mr. Francisco is a Crispy Chicken Vendor. Ms. Liza Zobel is a Fish
Vendor. Mr. Elnier Felino is a Pedicab Driver, Mr. Edvin Soriano buys defective phones from
Badjao and repairs it. Someone is a construction worker. Meanwhile, under the underground
economy, Alyas “Ode” is a thif who stoles phones and sell it at a lower price, while Alyas
“Edong: and Alyas “Betong” are drug sellers.

Monthly Income

In their nature of business, there is also an income. As an advantage for their informal or
shadow economy, they do not pay taxes and other contributions, which makes their money all only for
them. The crispy chicken vendor has a monthly income of Php 24,000. Meanwhile, the fish vendor has
Php 12,500 income per month. The Pedicab Driver has a monthly income of Php 6,200. On the other
hand, the cellphone repairman has an income of Php 50,000 monthly and the construction worker has a
monthly income of Php 12,000. The ones in the underground economy like the thief can ear Php 9,000
per month while the drug dealers earn Php 36,000 and Php 180,000 per month.

IV. Computation of the Combined Income

This part of research shows the computation of the combined income of the respondents with
regards to informal economy of Barangay 649, Baseco Port Area, Manila.

Table 1

Computation of the Combined Monthly Income of the Respondents under Gray Economy
 Name/Alyas Work Monthly Income
Mr. Francisco Crispy Chicken Vendor Php 24,000
Ms. Lisa Zobel Fish Vendor Php 12,500
Mr. Elnier Felino Pedicab Driver Php 6,200
Mr. Edwin Soriano Buying defective phones from Php 50,000
Badjao
Construction Worker Php 12,000
TOTAL Php 104,700

The table shows the computation of the combined income of the respondents under gray
economy. The table listed the names and work of the respondents under gray economy.

It can be gleaned on the table that the person with the highest income is Mr. Edwin Soriano, who
is a cellphone repairman, who earns Php 50,000 per month. On the other hand, Mr. Elnier Felino has the
lowest income, which is Php 6,200 per month. This indicates that a cellphone repairman may have lots of
clients.

When combined, their total monthly income is Php 104,700. This indicates that in a month, the
income of the persons in Barangay 649 under gray economy ranges around hundreds of thousands, and
they get it tax-free.

Table 2

Computation of the Combined Monthly Income of the Respondents under Underground Economy

Name/Alyas Work Monthly Income

Alyas “Ode” Thief Php 9,000
Alyas “Edong” Drug Seller Php 36,000
Alyas “Betong” Drug Seller Php 180,000
TOTAL Php 225,000

The table shows the computation of the combined income of the respondents under underground
economy. The table listed the names and work of the respondents under underground economy.

It can be gleaned on the table that the person with the highest income is Alyas “Betong”, a drug
seller who has a monthly income of Php 180,000. Meanwhile, the one with the lowest income is Alyas
“Ode”, who has a monthly income of Php 9,000. This indicates that there is more income in selling drugs
illegally, which may be on-demand yet illegal and being a thief can be by chance.

Their entire monthly revenue is Php 225,000 when combined. This means that people in
Barangay 649 earn hundreds of thousands of pesos every month in the underground economy, and they
don't pay taxes on it.

Table 3

Computation of the Combined Monthly Income of the Respondents with the Types of Shadow
Economy
 Types of Shadow Economy Monthly Income
Gray Economy Php 104,700
Underground Economy Php 225,000
TOTAL Php 329,700

The table shows the computation of the combined income of the respondents with the types of
shadow economy. The table listed the types of shadow economy and the combined income under the
types of shadow economy.

It can be gleaned on the table that in Underground Economy, the income is Php 225,000, which is
greater than the income under Gray Economy, which is Php 104,700. This means that there is a greater
chances that there is a bigger income when people do underground economy, despite being illegal.

The total income of the respondents who were questioned in the shadow economy was Php
329,700. This means that the respondents' income is close to half a million pesos, and they may collect it
tax-free.

IV. Conclusion

Based on the findings and the analysis of the data, the following conclusions are made:

1. The annual budget for Barangay 649 in Manila's Baseco Port Area is Php 49,892,159.00. This acts as a
budget for the barangay's operations, as well as remuneration for officials and the implementation of the
barangay's initiatives. The monthly earnings of the officials are reflected in this budget.

2. Each official's pay is distributed every three (3) months. A barangay chairman's salary is Php 45,000
every three months. Meanwhile, each barangay councillor will receive Php 25,000, the barangay secretary
will receive Php 20,000, and the barangay employees will receive Php 15,000 apiece.

3. Under shadow or informal economy, most of the persons have a gray economy type of business. They
enter in small-scale businesses which does not pay taxes. Also, there is another type of economy which is
applied in the barangay, which is informa; economy.

4. There is a higher income in the underground economy than in gray economy. Based on the findings,
illegal types of work give much more income than in gray economy.

5. The income of the residents in the shadow economy of Barangay 649 cost almost half a million pesos,
which contributes to the economy of the barangay, even they do not pay taxes.

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