Final answer:
The underground economy comprises unregulated labor and goods markets outside of official oversight. It doesn't contribute to tax revenue and could be mitigated by inclusive economic policies and addressing poverty and unemployment.
Step-by-step explanation:
The underground economy refers to an unregulated market of labor and goods that operates outside official regulatory systems, taxes, or human protections. Economic activities in this sector include unlicensed cab driving, home-based piecework, and street vending, which are essential for the survival of many in developing countries. Despite its significance in providing livelihoods, it is generally viewed negatively by economists because it does not contribute to tax revenues, does not encourage the formal growth of businesses through loans, and the earnings are often too meager to foster consumer spending within the official economy. To reduce the size of the underground economy, governments and policy-makers may consider creating more inclusive economic policies, providing easier access to formal credit systems, and offering social protections that would motivate individuals to participate in the regulated economy. Addressing deep-rooted issues such as poverty, unemployment, and lack of education, which push people to work in the informal sector, is also crucial.