Unreported American income greater than the defense budget
The American defense budget for 2004 is projected at $390 billion, about 3.5 percent of the GDP. Today Daniel Akst at The New York Times reports that off-book income, or earnings in America's underground economy, is calculated by the International Monetary Fund at "8.6 percent of gross domestic product in the United States," and has been climbing steadily for 30 years.

One reason for this growth is the arrival of millions of immigrants, especially illegal ones. There were an estimated 8.7 million illegal immigrants in this country in 2000, according to the Census Bureau. And a large proportion are working off the books for employers who appreciate cheap, compliant labor free of employment regulations and payroll taxes. Another reason is the growing importance of the service economy: it is easier to keep this activity off the books.

While a large underground economy suggests a lot of tax evasion, it also implies something positive: that inflation is even lower than the official rate. And, of course, it means that an awful lot of employment is not captured by government statistics.

So I'm doubtful that unemployment was a big problem this Labor Day, especially given the odds that someone out of work might be living with someone else who still has a job and thus can put food on the table. That the United States economy has produced enough jobs for millions of women and immigrants over the years — without unemployment soaring far beyond 6 percent — is close to miraculous.

The real problem is what has happened to the least skilled — and least paid — workers. From 1979 to 2001, according to the Bureau of Labor Statistics, the real earnings of men without high school diplomas fell by a horrifying 28 percent. For women, whose pay was already lower, the decline was still 9 percent. Here, too, immigration and off-the-books labor have played roles, by sharply increasing the pool of low-skill labor.