Dropping the Books and Working Off the Books

Abstract

The paper empirically tests the relationship between underground labour and schooling achievement for Italy, a country ranking badly in both respects when compared with other high‐income economies, with a marked duality between North and South. In order to identify underground workers, we exploit the information on individuals' social security positions available from the Bank of Italy's Survey on Household Income and Wealth. After controlling for a wide range of sociodemographic and economic variables and addressing potential endogeneity and selection issues, we show that a low level of education sizeably and significantly increases the probability of working underground. Switching from completing compulsory school to graduating at college more than halves this probability for both men and women. The gain is slightly higher for individuals completing the compulsory track with respect to those having no formal education at all. The different probabilities found for self‐employed and dependent workers support the view of a dual informal sector, in which necessity and desirability coexist.