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‘Pasta and beans’ – Italy’s shadow workers are out of the safety net

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Via Financial Times

For anxious Italians, distraught at the impact of the coronavirus lockdown on their livelihoods, “Cure Italy” offers a lifeline.

The €25bn benefits package, unveiled by the government two weeks ago, will help those facing temporary lay-offs, extend unemployment benefits to companies and give a one-off €500 bonus to the self-employed and agricultural workers, moves that could be extended if the shutdown in the eurozone’s third-largest economy goes on for longer than envisaged.

Yet one group of workers will find it difficult to access the government’s much-needed safety net: those engaged in Italy’s vast black market.

The informal and undocumented economy — illicit activity ranging from cash-in-hand payment for labour to organised crime — is estimated by Italy’s official statistics office, Istat, to account for 12.1 per cent of gross domestic product. Other estimates have concluded the black economy could represent as much as 20 per cent of Italy’s GDP.

While few Italian politicians would want to be seen to be propping up so-called working in nero, even in a time of crisis, the health of the black market has a broad effect on the economy as a whole.

Italy’s shadow economy was worth slightly less than the entire nominal annual output of Portugal in 2017 — the latest year for which figures are available — with an estimated value of €211bn. Of that, Istat calculates that around €19bn was tied to criminal activity. In the same year, the Italian senate published a report estimating that taxes on as much as €132.1bn in total gross income is evaded annually

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“The informal economy in Italy is very large, and the government will not be able to reach these people by simply providing assistance to the companies that employ them,” said Francesco Lippi, a professor of economics at Luiss university.

One 52-year-old builder, who spoke to the FT on condition of anonymity, said he had lost his job three years ago and had eventually found employment at a construction company, where he has worked for more than two years with no official contract. With an average salary of €1,400 a month paid in cash he managed to support his wife and two children.

But since the nationwide lockdown was imposed across Italy on March 9 he has been unable to work and is not going to benefit from the new measures announced by the government.

“I am now making zero money. I have no contract. To the state I do not exist,” he said. “Unfortunately, in the building sector many people are not lucky enough to have a regular contract. Sometimes there’s no other option than working in nero. You have to adapt to the system or you die”.

Virginia Raggi, mayor of Rome
Virginia Raggi, mayor of Rome, expressed sympathy for those working in the black market who have lost their income as a result of the coronavirus crisis © EPA

Virginia Raggi, the Five Star Movement mayor of Rome, prompted an angry response in parts of the Italian media this month when she expressed sympathy for those working in the black market who have lost their income as a result of the coronavirus shutdown.

“Even if it seems bad to say it, I feel close to the people who are working in nero and suddenly find themselves out of work,” she said.

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Others have little sympathy for informal workers who pay no tax and who now find themselves without obvious access to state support, and argue that the situation may serve as a catalyst for bringing non-criminal black market activity on to the books.

“If the measures don’t help the informal economy, that is fine, Italy should not have an informal economy,” said Lorenzo Codogno, a former chief economist and director-general at the Italian treasury. “This in fact may be a way to incentivise parts of the country’s informal economy to emerge and become formal.”

One 28-year-old-woman from Rome who gives private language lessons for cash in hand said her work had completely dried up. She normally earns between €300 and €400 a month.

“It’s the only way to get by for me. I know it’s not much, but that’s all my income. It really helps to have that little money to buy some of the things I need. Now I have lost all my purchasing power”, she said.

Italy unemployment benefits are mostly reserved for those who have previously had a formal job. The “citizens’ income” policy rolled out by the Five Star Movement in 2019 is broader, and is currently paid to 2.23m people, according to the pensions and social security agency INPS, with the amount received monthly averaging €551.57.

However, with Italy in lockdown and state employment offices operating by appointment only, it is not clear how easy it will be for those in need to sign up to the citizens’ income.

Because many Italians who exist outside the formal economy are now unable to work, there is a risk the coronavirus epidemic will strengthen the grip of criminal groups in parts of Italy where they are already strong. Small businesses and individuals facing a cash crisis may be vulnerable to those who have large amounts of capital accumulated through extortion, drug trafficking and other illegal activity.

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“We know what happens in a crisis,” said Anna Sergi, a senior lecturer in criminology at the University of Essex and an expert in organised crime groups. “On one side you have people and companies with liquidity problems, a lot of businesses will fall apart. On the other side you have people with lots of cash who are engaged in loan sharking, connected to organised crime. We saw this in Italy in the financial crisis.”

The vast majority of those working informally with no links to criminal activity have far fewer options and much less support than their taxpaying fellow Italians.

“I just hope this situation will be over soon,” the builder said. “We are running out of money and my children are sick of eating pasta and beans.”

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