Undeclared Work And Wage Inequality
AbstractIn this paper we study how undeclared work affects the wages of undeclared and declared workers and in particular the declared wage inequality. Using individual data on Italy in the years 2000-2004, we compute a cross and own labor demand elasticity for undeclared and declared work. We provide an identification strategy relying on Italian amnesty tax laws in 2002. Such laws have changed the shape of Italian undeclared sector causing a quick emersion of undeclared workers. Our results based on a set of 2SLS regressions suggest that undeclared work: 1) decreases declared wages, 2) adversely affects undeclared wages and 3) raises wage inequality in the declared sector. Undeclared work competes more with least skilled jobs, while do not affect high skilled jobs. We found complementarity between undeclared workers and medium skills jobs. As a consequence reducing undeclared work decreases wage inequality as well as it decreases the earnings in medium skill sectors. This result suggests that undertaking reducing undeclared labor-policy might encounter resistance because of welfare loss of the medium class of workers.
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Bibliographic InfoPaper provided by Università della Calabria, Dipartimento di Economia, Statistica e Finanza (Ex Dipartimento di Economia e Statistica) in its series Working Papers with number 201108.
Length: 20 pages
Date of creation: Aug 2011
Date of revision:
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Postal: Università della Calabria, Dipartimento di Economia, Statistica e Finanza, Ponte Pietro Bucci, Cubo 0/C, I-87036 Arcavacata di Rende, CS, Italy
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Web page: http://www.unical.it/portale/strutture/dipartimenti_240/disesf/
More information through EDIRC
Elasticity of labor demand; Undeclared labor; Wage inequality;
Find related papers by JEL classification:
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-15 (All new papers)
- NEP-HRM-2011-08-15 (Human Capital & Human Resource Management)
- NEP-IUE-2011-08-15 (Informal & Underground Economics)
- NEP-LAB-2011-08-15 (Labour Economics)
- NEP-LMA-2011-08-15 (Labor Markets - Supply, Demand, & Wages)
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