Italy's Secret Economy

Illegal cellar factories and low wages--but no taxes

Faced with a tough government austerity program and a period of inevitable economic hardship, millions of Italians have fallen back on a uniquely Latin approach to the problem of how to preserve the vestiges of their fast disappearing dolce vita. With wage gains quickly eroded by runaway inflation and jobs in any case difficult to find, many workers have simply quit the official system to work in the booming secret economy that has come to be known as il lavoro nero, the labor black market.

Italian guesstimates are that nearly 5 million "unemployed, retired and sick" people--a fifth of the nation's total labor force--work full or part time at jobs that do not officially exist. Another 3 million are believed to moonlight regularly at unreported second and even third jobs. Entire families work at home assembling ball-point pens, making shoes, stamping out auto parts or upholstering furniture. Hospital nurses work after hours in clinics; cops and firemen do lucrative plumbing or electrical work in their spare time. Many wages are substandard: as low as $60 a month. But there are no tax or social security deductions. Workers find the jobs rewarding. With everyone pitching in, family income can be substantial.

Especially in industrialized northern Italy, black labor exists only with the eager cooperation of official business. Companies lease sophisticated and expensive machinery and make direct loans to help families set up cellar factories whose workers labor all hours to meet delivery dates. Even the biggest Italian and other European-owned subsidiaries may buy components from suppliers who use black labor (U.S. subsidiaries prefer to play by the official rules). For some companies, use of the secret labor pool can spell the difference between survival and bankruptcy. Italian industry is bound hand and foot by prounion laws that make it virtually impossible to lay off workers in slack periods, mandate extensive and expensive fringe benefits and tie official factory wages to soaring prices; unionized workers further stage incessant strikes and have horrendous rates of absenteeism. In a sense, the clandestine workers and their employers are reintroducing really free enterprise into a rigid system.

There are, of course, moral qualms about the strange phenomenon of efficient but illegal industry. Professor Franco Ferrarotti, a sociologist at the University of Rome, argues that "from a social point of view, home industry is slave labor. It is obviously wrong. It would be better to drop it altogether." Yet he concedes, "It works. Black labor acts as a shock absorber enabling Italy to survive economic crises." His conclusion: "This is a very backward --and yet advanced--way of doing things."

In any case, the government has turned a blind eye toward black labor, despite pressure from unions and some companies. For example, the government has so far not acted on pleas from clothing manufacturers that it cancel a contract for 70,000 carabinieri uniforms awarded to two small companies that underbid competitors by 50%, presumably by turning to cellar or cottage workshops. Even if there were enough tax inspectors to close all secret factories, such a move could hurt the economy. Italy's fragile economic recovery could be damaged and its exports priced out of world markets. Black labor, indeed, may be modern Italy's unorthodox solution to the ancient problem of surviving declines and falls.

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