Undeclared Labour in Cournot Oligopoly

Undeclared Labour in Cournot Oligopoly

In a duopoly where firms are competing by adjusting their quantities and the wages are exogenously determined, we analyze the undeclared labour phenomenon and its side effects in product market. Our analysis focuses on the opportunity cost between the taxation and the contributions for social security.

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Even though during the past decades a broad range of methods has been developed to analyze the undeclared labour phenomenon, to understand its dimensions and causes, to formulate an appropriate policy to constrain its spread, neither this phenomenon has been examined with any available method, nor the discussion about which methodology is the most appropriate has still not come to an end.

In particular, there has been an extended use of econometrics and applied statistics in the relevant researches. Surveys from international organizations (such as OECD, ILO, EU etc) based mostly on evidence and results of state audits also consist a notable framework. However, undeclared labour has not yet been approached or analyzed using the framework of industrial organization and game theoretic analytical toolkit.

With this research, we aspire to deliver a different approach, using the industrial’s organization framework. Moreover, one of the main goals of this work is to propose a different policy for restraining the phenomenon of undeclared labour. As it is shown, the use of proper tax rates relative to those of social insurance could – under certain circumstances – restrain the economic attractiveness of this phenomenon. 

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