From these two questions we can construct an index of irregular
activities by dividing the number of years not covered by social security
contributions by the length of the working life. There are several
advantages to using these questions. First, they are directly related to
evasion of social security contributions and irregular work, among the
main signs of underground activity. Second, while respondents are
unlikely to reply to direct questions about their jobs, they may be
more inclined to report indirect information on contributions towards
their pensions. Third, since our objective is to study the relation
between the underground economy and financial development,
it is straightforward to merge our index of irregular work with the
index of financial development proposed by Guiso et al. (2004),
which is estimated using the same data