The Role of Digital Economy in Reducing Unemployment and Informal Labour

Abstract

In the context of global labour market shifts, the digital economy has emerged as a potent mechanism for reducing unemployment and formalising informal labour. This article examines how digital technologies, digital platforms, and digital infrastructure contribute to job creation, better labour market matching, and the transition of workers from informal to formal employment. Focusing on developing economies and drawing on recent studies, the paper identifies key pathways through which the digital economy can reduce unemployment and the size of informal labour, while also highlighting potential risks such as job substitution, digital divide and precarious work. Special attention is given to the Pakistani context, where informal employment remains large and digital opportunities are growing. The article proposes policy recommendations to harness the digital economy for inclusive employment growth, especially for low skilled and vulnerable workers. The findings suggest that while the digital economy offers significant promise for employment formalization and unemployment reduction, concerted strategies are needed to ensure digital access, skills development and supportive regulatory frameworks.