Handling Class Imbalance and Class Overlap in Machine Learning Applications for Undeclared Work Prediction

Abstract

Undeclared work is a composite socioeconomic matter severely affecting the welfare of workers, legitimate companies, and the state by issuing unfair competition in the labour market and causing considerable state revenue losses by tax evasion. Labour inspectorates are tasked to deal effectively with this issue but usually lack adequate resources and proper tools, yet they own large volumes of past inspection data that, if aptly processed through innovative machine learning techniques, may produce understandable insights into the extent and prevailing patterns of undeclared work and efficient tools to address it. Such datasets are typically imbalanced regarding undeclared work, and contain overlapping inspection discoveries, two issues that impede the learning process. This research points to the problems of class imbalance and class overlap in this domain and applies combinations of data engineering techniques to address them using a dataset of 16.7 K actual labour inspections. Three associative classification algorithms are employed, and multiple classifiers are built and assessed for their predictability and interpretability. The study indicates the overall benefits for the inspection authorities when integrating machine learning methods in targeting undeclared work and proves considerable prediction performance improvement when following data engineering approaches to address the class imbalance and class overlap issues.