Brown bag seminar | What we pay in the shadow: Labor tax evasion, minimum wage hike and employment
Stockholm Institute of Transition Economics (SITE) cordially invites you to join the online brown bag seminar with Nicolas Gavoille presenting a working paper titled`What we pay in the shadow: Labor tax evasion, minimum wage hike and employment´.
What we pay in the shadow: Labor tax evasion, minimum wage hike and employment
(Co-author: Anna Zasova)
The interactions between minimum wage policy and tax evasion remain largely unknown. We study firm-level employment effects of a large and biting minimum wage increase in Latvia conditional on labor tax compliance. The Latvian labor market is characterized by the prevalence of envelope wages, i.e., unreported cash-in-hand complements to the official wage. We apply machine learning to classify firms between compliant and tax-evading using a unique combination of administrative and survey data. We then show that firms engaged in labor tax evasion are insensitive to the minimum wage shock. Our results suggest that these firms use wage underreporting as an adjustment margin, converting (part of ) the envelope into legal wage. Increasing minimum wage contributes to tax rule enforcement, but this comes at the cost of negative employment consequences for compliant firms.
Read the working paper to learn more
About the speaker
Nicolas holds a PhD in Economics from the University of Rennes 1, France, and is a board member of the Baltic Economic Association and a member of the Editorial Committee of the Baltic Journal of Economics. He is also a member of the European Public Choice Society, of the French Economic Association and of the Condorcet Center for Political Economy.
He has published articles in academic reviews such as the European Economic Review, the European Journal of Political Economy, the International Review of Law and Economics and the Journal of Institutional and Theoretical Economics. His main research interests are in the field of political economy and public economics.
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