IDEAS home Printed from
   My bibliography  Save this paper

Black Market, Labor Demand and Tax Evasion


  • Marc-Arthur Diaye

    () (Centre d'Etude de l'Emploi and University of Evry (EPEE))

  • Gleb Koshevoy

    () (Central Institute of Economics and Mathematics (CEMI))


According to many empirical studies, the size of the black market is growing in the OECD countries. Among the reasons for such a phenomena, is the labor market structure (mainly high total labor costs and the reduction in working hours in the official economy). The supply side of the labor market has been widely studied in the literature (see for instance Lemieux et al. 1994, Frederiksen et al. 2005). However there exist few analyses of the demand side (see for instance Fugazza and Jacques 2003) and in general they consider that the firms operate either on the official market or on the underground one. To the best of our knowledge there exists no formal analysis of the demand side of the labor market in which the firms can operate both in the official and (directly or indirectly) in the underground markets and this is very surprising given the (estimated) high number of illegal workers in most OECD countries. On the contrary, this paper focuses on the demand side and analyses the main driving forces behind the demand by (legal) firms for labor force in the black market. We show that the firms's technological characteristics matter. Moreover we construct a Principal-Multiagents model with an endogeneous probability for the Agents (the firms) to be detected by the Principal (the government) when using a black labor force. We assume the agents to compete in a Cournot Oligopoly structure and we show that at the Cournot equilibrium, the more the Principal controls the production reported by the agents, the more the probability of detection decreases.

Suggested Citation

  • Marc-Arthur Diaye & Gleb Koshevoy, 2006. "Black Market, Labor Demand and Tax Evasion," Documents de recherche 06-04, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  • Handle: RePEc:eve:wpaper:06-04

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    non reported activities; black market;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eve:wpaper:06-04. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Samuel Nosel). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.