Some preliminary history

The Italian debate on the unobserved economy dates back to the early 1970's when several authors of labor market studies pointed out the rapid decline in the labor force participation rate. During the late 1950's, the official overall participation rate (defined here as the ratio of labor force to total population) was nearly 45%, comparable to that of most industrialized countries. During the late 1960's, it declined to 39%, and by the mid-1970's it had dropped to less than 35%, far below the trend of all of Italy's neighbors, let alone of countries such as France and the United States, where female participation rates were already rising and have indeed risen remarkably during the last decade. The idea developed that the massive outflow from agriculture – far from being completed – might explain a fraction of the decline at the most; the rest reflect increasingly wider segments of the population of working age holding unrecorded jobs of various kinds and yet claiming not to belong to the active population for fear of losing these jobs.

With the passage of time, there was growing confirmation that the participation rates estimated by ISTAT (Italian National Income and Product Accounts Authority) via the Quarterly Survey on the Labor Force (QSLF) had widely underestimated the extent of individual participation in the active population. It was observed that participation rates were falling for some categories of workers (women of all ages and the young and the aged of both sexes) but not for male workers in their “prime” years.