Tricked into trouble: Deception, threat, and coercion in exploitative labor relations

Maximilian L. Schmitt, Gewei Cao, Thomas Meissner and Hannes Rusch
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Maximilian L. Schmitt: RS: GSBE other - not theme-related research, Microeconomics & Public Economics
Gewei Cao: RS: GSBE other - not theme-related research, Microeconomics & Public Economics
Thomas Meissner: RS: GSBE UM-BIC, Microeconomics & Public Economics
Hannes Rusch: RS: GSBE UM-BIC, Microeconomics & Public Economics, RS: GSBE other - not theme-related research

No 7, Research Memorandum from Maastricht University, Graduate School of Business and Economics (GSBE)

Abstract: Exploitative labor conditions are a massive global challenge, generating substantial illicit gains for delinquent employers. However, their strategic logic remains poorly understood. Here, we study the three practically most relevant forms of exploitative employer behavior in a principal-agent setting: deception, threat, and coercion. We analyze principals’ incentives for using these means, their welfare consequences, and the effects of introducing licensing to mitigate prevalent deception. We find that exploiters’ use of deception harms not only agents but also legitimate employers who are forced to compensate agents for the risk of exploitation. Moreover, we observe that increasing the costs of exploitation does not necessarily improve social welfare, as it can incentivize more employers to use milder forms of exploitation. Overall, we improve the economic understanding of exploitative labor relations by separating threat and coercion, integrating deception, providing insights into resulting market distortions, and identifying crucial pitfalls for seemingly first-best policy interventions.

JEL-codes: D01 D80 J47 (search for similar items in EconPapers)
Date: 2025-09-18
New Economics Papers: this item is included in nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:unm:umagsb:2025007

DOI: 10.26481/umagsb.2025007

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