Underground Employment and Unions. Is there a Relationship? Evidence for Italy

In this paper we have investigated the nature of the relation between underground employment and
unions, starting from a very simple intuition, that is the hypothesis of the existence of
two different and opposite channels through which unions affect underground employment.
The econometric investigation with Italian data has confirmed this intuition, pointing
out two main results. The presence of unions generates shadow activities via higher
wages and market rigidities. By contrast, the relationship between union strength and
the hidden economy may turn out to be negative when considering regression based on
sectorial or industry data, even though it is not uniform among economic sectors.