Employment and tax burden on labor: A legal implication

High unemployment and widespread informality in the labor markets are challenges to sustainable economic growth in developing countries. This paper analyzes the impact of tax burden on labor as an important determinant of formal employment. The purpose of the research is to estimate the size of the tax wedge and to investigate the relationship between employment and tax wedge, to quantify the impact, of the Albanian economy. To analyze the impact of tax wedge on employment we apply the autoregressive distributed lag (ARDL) method, quarterly data for the period 2000Q1–2023Q4. The paper demonstrates a negative relationship between employment and tax wedge that is strong and significant in the long run. The study supports considering the decrease of the employer’s social security contributions in order to improve employment. The results also show that real per capita gross domestic product (GDP) has a positive but not significant relationship with employment, supporting that growth does not fully generate new jobs. The impact of a minimum wage increase on aggregate employment is small and not statistically significant.