Template-Type: ReDIF-Article 1.0

Title: The impact of the shadow economy on unemployment
Author-Name: Narimen Rdhaounia
Author-Name: Saoussen Ouhibi

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.

Classification-JEL: J24, D63, O50, O55.
Keywords: Shadow economy, unemployment, ARDL Model, Tunisian.

Journal: Journal of Economics and Econometrics

Pages: 61-75
Volume: 69
Issue: 2
Year: 2026

File-URL: https://ideas.repec.org/a/eei/journl/v69y2026i2p61-75.html
File-Restriction: Full text for ScienceDirect subscribers only

Handle: RePEc:eei:journl:v:69:y:2026:i:2:p:61-75