Joint Enforcement Strike Force Combating California’s Underground Economy

The Joint Enforcement Strike Force (JESF) is a coalition of California State government enforcement agencies that work together and in partnership with local and federal agencies to combat the underground economy to ensure a level playing field for California businesses. The JESF’s goals are intended to help restore economic stability and to improve working conditions and consumer and worker protection in the State.

The goals of the JESF are to:

  • Eliminate unfair business competition.
  • Protect workers by ensuring they receive all compensation, benefits, and worker protections they are entitled to by law relating to their employment.
  • Protect the consumer by ensuring all businesses are properly licensed and they adhere to the State’s consumer protection regulations.
  • Reduce the burden on law-abiding citizens and businesses by ensuring all businesses and individuals comply with the State’s licensing, regulatory, and payroll tax laws.
  • Reduce the tax gap by increasing voluntary compliance with the State’s payroll tax laws to maximize the State’s General and Special Fund revenues.

JESF’s Legal Authority

On October 26, 1993, the Governor signed Executive Order W-66-93, which created the JESF on the Underground Economy. The Governor subsequently signed Senate Bill 1490, which placed the provisions of the Executive Order into law as Section 329 of the California Unemployment Insurance Code (CUIC), effective January 1, 1995.

The Employment Development Department (EDD) is the lead agency for JESF, and the Director of EDD, or his or her designee is the chairperson. The JESF is responsible for enhancing the development and sharing of information necessary to combat the underground economy, to improve the coordination of enforcement activities, and to develop methods to pool, focus, and target enforcement resources. The JESF is empowered and authorized to form joint enforcement teams when appropriate to utilize the collective investigative and enforcement capabilities of JESF members.

In addition to the EDD, the other JESF members and participating governmental entities are:

The Underground Economy in California – What Does it Cost?

The actual size of the underground economy is difficult to measure. Estimates are that underground activity in the United States in 2012 totaled as much as $2 trillion, according to a study by Edgar Feige, an economist at the University of Wisconsin-Madison. In 2012, the IRS released a new set of tax gap estimates for tax year 2006. The tax gap is defined as the amount of tax liability faced by taxpayers that is not paid on time. After adjusting for audit and collection activities, the IRS estimates that in 2006 the net national tax gap was approximately $385 billion. In its March 2015 report, California’s Little Hoover Commission indicated “The underground economy also robs the state of an estimated $8.5 billion to $10 billion in uncollected tax revenue, money that could fund education, law enforcement or long-overdue infrastructure investments or reduce taxes for the majority of Californians who play by the rules.

Barron’s Online featured the article, Going Underground, on January 3, 2005. This article states in part:

“America has two economies, and one is flourishing at the expense of the other. First, there’s the legitimate economy, in which craftsmen are licensed and employers and employees pay taxes. Then there’s the fast-growing underground economy, where millions of workers are paid off-the-books, their incomes largely untaxed.”

Reports on the underground economy indicate it imposes significant burdens on revenue needed to fund critical state programs and businesses that comply with the law. When businesses operate in the underground economy, they gain an unfair, competitive advantage over businesses that comply with labor, licensing, and payroll tax laws. This causes unfair competition in the marketplace and forces law-abiding businesses to pay higher taxes and expenses.

Workers of noncompliant businesses are also affected. Their working conditions may not meet the legal requirements, which can put them in danger. Their wage earnings may be less than what is required by law, and benefits they are entitled to can be denied or delayed because their wages are not properly reported. Consumers can also be affected when contracting with unlicensed businesses. Licensing provisions are designed to ensure sufficient skill and knowledge to protect consumers.

As illustrated above, the underground economy impacts not only businesses but workers and consumers as well.

JESF Reports

Each year by June 30th, the Joint Enforcement Strike Force (JESF) prepares an annual report to the Governor and Legislature on their activities and accomplishments. These reports are available to view in PDF format below.

Additional Resources