Interdependence Between Human Capital and the Power of a Shadow Economy: Lithuanian Case Study

Abstract

According to economic theory, economic growth is related to Human Capital (HC). Lithuania is associated with countries where a high level of shadow economy exists. This paper examines the issues of human capital development under conditions of shadow economy. The aim of this paper is to evaluate the power and effects of the Lithuanian shadow economy in the context of human capital and to assess the inter-dependence between the power of the shadow economy and human capital. The theoretical justification for research on the inter-dependence between the power of the shadow economy and human capital is based on the analysis of how changes in the human capital structure and indicators reflect the power of the shadow economy and vice versa. Theoretical analysis has been made on the main features and factors of shadow economy and possible tools of human capital evaluation. On the basis of theoretical findings, the model of shadow economy power has been created and using the linear regression method, the dependence of shadow economy power on human capital has been evaluated. The power of the shadow economy has been calculated as a function of population, GDP, trade, unemployment and the labor force. Variables of social development, such as demographic changes and risk of poverty, indicators of HC economic development and indicators of HC economic potential have been used for the research. For the evaluation of the interdependence of the variables, the years 2005–2012 were used. In evaluating human capital under the conditions of the shadow economy, a few periods have been identified and distinguished. Firstly, the results showed that the level of human capital education and unemployment can be described as the most important indicators that reflect the economic environment and shadow economy. Secondly, the increasing level of the shadow economy increases shadow unemployment, and this in turn influences the attraction of direct foreign investment. And finally, research on the influence of separate factors of the shadow economy on variables of human capital could disclose a deeper understanding of the impact of the shadow economy on human capital.

Incorporating poverty in society into strategic human resource management

“…Therefore, variances in regional cultures provide an influential context for social exchange by constraining or reinforcing organizational behavior to act in a mutually committed way (Coyle-Shapiro et al, 2004;Kim and Wright 2011). Given the divergent degree of poverty in different regions (Copus et al, 2015, Piacentini, 2014 and, consequently, the different degree of social trust and cooperative behavior (Čiutienė et al, 2015;Diehl et al, 2018;Haushofer and Fehr, 2014), Coyle-Shapiro et al's (2004) and Kim and Wright's (2011) claim is particularly relevant for our study.…”

“…Poverty and inequality 1 are allied with the growth of the shadow economy and corruption, which leads to a degradation of society by reducing citizens' welfare and social trust (Bapuji, 2015;Čiutienė et al, 2015;Diehl et al, 2018;Rothstein and Uslaner, 2005;You, 2018). The shadow economy, expressed in the growth of illegal labor and unaccounted income, increases social differentiation and distrust in the state (Čiutienė et al, 2015).…”

Az árnyékoktatás oktatásgazdasági közelítésben

“…Egyes kutatók szerint az árnyékgazdaság megjelenése torzítja a humántőke növekedését ösztönző eszközök alkalmazását (Ciutiene et al 2015). Az árnyékgazdaság ugyanis csökkenti az állami termelékenység átlagos szintjét, ezáltal pedig egy ország növekedését.…”

“…Az általános elgondolással ellentétben az empirikus tanulmányok kimutatták, hogy amikor a hivatalos gazdasági tevékenység mennyisége növekszik, az árnyékgazdaság is növekszik. Ezért az árnyékgazdaság társadalmi romlást is okozhat (Ciutiene et al 2015).…”