The impact of the shadow economy on unemployment

Narimen Rdhaounia and Saoussen Ouhibi

EERI Research Paper Series from Economics and Econometrics Research Institute (EERI), Brussels

Abstract: This paper examines the causal relationship between the shadow economy and unemployment in Tunisia, focusing on the direction of causality and its theoretical foundations. Drawing on labor market segmentation and the dual economy model, the study argues that informality can strain the formal labor market by diverting labor supply, reducing formal job opportunities, and reinforcing unemployment. Using monthly data from 1991–2017, an Autoregressive Distributed Lag (ARDL) model estimates both short- and long-run effects. Results show a significant positive long-run impact of the shadow economy on formal unemployment, highlighting structural constraints imposed by informality. Policy implications include formalizing economic activities, encouraging informal enterprises to transition to the formal sector, promoting decent job creation, and strengthening labor protections. This research provides country-specific empirical evidence on Tunisia’s informality–unemployment nexus, clarifies causality direction, and offers actionable insights for addressing unemployment through regulation and formalization of the shadow economy.

Keywords: Shadow economy; unemployment; ARDL Model; Tunisian. (search for similar items in EconPapers)
JEL-codes: D63 J24 O50 O55 (search for similar items in EconPapers)
Date: 2026-01-08
New Economics Papers: this item is included in nep-ara, nep-iue and nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.eeri.eu/documents/wp/EERI_RP_2026_08.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eei:rpaper:eeri_rp_2026_08

Access Statistics for this paper

More papers in EERI Research Paper Series from Economics and Econometrics Research Institute (EERI), Brussels Contact information at EDIRC.
Bibliographic data for series maintained by Julia van Hove ().