This study aims to analyze and investigate the impact of digital transformation indicators, represented by Capital Formation (INV), Internet usage rate (INT), GDP growth rate (GDP), and Inflation rate, on unemployment rates (UN) in the Libyan economy during the period 1996–2025. The study relied on time series data collected from the World Bank Open Data, International Labour Organization (ILO) estimates, and Global Economic Prospects reports issued by the World Bank and the IMF. The study employed the Autoregressive Distributed Lag (ARDL) methodology, chosen for its suitability for small sample sizes and its efficiency in providing robust long-term results. The results indicated the existence of a long-term equilibrium relationship between digital transformation and unemployment rates. Furthermore, the findings confirmed a statistically significant non-linear relationship in the short run only, taking an inverted U-shaped form. This suggests that digital transformation initially leads to an increase in the unemployment rate due to technological replacement, reflecting the Libyan labor market's inability to adapt immediately and the institutional shortcomings in absorbing digital shifts. However, in the long run, the results showed no statistically significant impact of digital transformation on unemployment rates. The study also highlighted the vital role of capital investment (INV) in reducing unemployment and supporting digital transformation by improving infrastructure, acting as the primary driver for enhancing the positive effects of digitalization. Conversely, the results showed that current economic growth fails to generate sufficient employment in technical sectors, as it had no significant impact on creating new job opportunities aligned with digital transformation trends. The study concludes with the necessity of adopting policies that support investment in human capital and digital training to enhance the role of digital transformation in reducing unemployment in the Libyan economy................ Keywords:................. Digital Transformation, Unemployment Rate, Capital Formation Rate, Internet Usage Rate, Libyan Economy.