Relations Between the Formal and Informal Economy and Employment Issues

This article examines the efficiency of labor resource utilization under conditions of the shadow economy. The study analyzes the underlying causes of informal employment, institutional constraints in the labor market, and the impact of the shadow sector on labor productivity. Statistical and economic analysis demonstrates that the shadow economy while in the short term helps satisfy the employment rate, in the long run it contributes to the fall in labor productivity, tax base shrinkage, and a falling social protection system. We suggest the policy-oriented analysys through the decreasing of informal employment, labor market institutional changes, and new digital technologies to diffuse labor efficiency.