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Estimating Labor Demand Function in the Presence of Undeclared Labour: A Look Behind the Curtain

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Abstract

This paper presents estimates of the own-wage elasticity for undeclared labour demand and calculates the effects of undeclared work on declared wages of various skill levels. To identify the parameters of interest, we exploit a quasiexperimental setting created by three tax amnesty laws brought brought into force in 2002 in Italy. Our main results indicate that an upward shift in undeclared work decreases undeclared wages, increases declared wages, and reduces wage inequality in the declared sector. We find q-complementarity between undeclared workers and low to medium-skilled workers.

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  • Edoardo Di Porto & Leandro Elia, 2015. "Estimating Labor Demand Function in the Presence of Undeclared Labour: A Look Behind the Curtain," CSEF Working Papers 389, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:389
    Note: A previous version of this paper circulated with the title "Undeclared Work and Wage Inequality"
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    1. Giorgio Gobbi & Roberta Zizza, 2007. "Does the Underground Economy Hold Back Financial Deepening? Evidence from the Italian Credit Market," CEP Discussion Papers dp0789, Centre for Economic Performance, LSE.
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    1. Vlassis, Minas & Mamakis, Stefanos & Varvataki, Maria, 2019. "Taxes, social insurance contributions, and undeclared labour in unionized oligopoly," Economics Letters, Elsevier, vol. 183(C), pages 1-1.
    2. Paolo Di Caro & Giuseppe Nicotra, 2016. "Short, Long and Spatial Dynamics of Informal Employment," Regional Studies, Taylor & Francis Journals, vol. 50(11), pages 1804-1818, November.

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