The current study investigates the influence of unemployment rate on the shadow economy in Libya using data that covers the period from 1995 to 2020. Using a time series estimation, namely the fully modified ordinary least squares (FMOLS), this study confirmed the positive association between the unemployment rate and the shadow economy in Libya. The findings indicate that the unemployment rate is associated with an increase in the shadow economy during the time period under study. Meanwhile, we show that more trade openness reduced the size of the shadow economy relative to GDP. Finally, this study suggests some policy implications. The government should pay more attention to the private sector to enhance job creation in the formal economy and overcome the inverse effects of the shadow economy in Libya. In addition, trade openness will contribute to non-oil exports and increase GDP growth, which in turn decreases the size of the informal economy.................. Keywords:.............. Shadow economy, Unemployment, FMOLS, Libya.