Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 28/2005: Unreported Labour

Tone Ognedal () and Erling Barth ()
Additional contact information
Tone Ognedal: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Erling Barth: Institute for Social Research,, Postal: Postbox 3233 Elisenberg, N-0208 Oslo, Norway

Abstract: Unreported labour by one worker in a firm increases the probability of detection for his fellow workers, not only for himself. The firm takes this external effect into account. As a consequence, unreported work becomes rationed by the firms demand, rather than determined by demand equal supply. The gap between supply and demand increases with firm size. An empirical analysis on survey data supports theses theoretical predictions. Using a bivariate probit model, we find evidence of excess supply of unreported work in firms. We also find that the gap between supply and demand increases with firm size.

Keywords: tax evasion; unreported labour

JEL-codes: H26; J20; J22; J23; J24

34 pages, November 10, 2005

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