they pay taxes and social security contributions, their actual ―employee rights‖ do not significantly differ from those employed in the shadow economy.

As a consequence it has been decided to use estimated shadow employment probabilities based on the basic definitions of shadow variables and full model specification in the further course of the analysis.

As the last step of this part of the analysis, the general trends of estimated shadow employment for various groups in the labor market were also calculated. Some of the results obtained were quite interesting although not particularly surprising. The differences in the average size of estimated shadow employment for various groups resulting from the model are quite standard.

For example, the average incidence of shadow employment in the period analyzed is higher for younger (below 24) and older (above 64) workers (8.7% and 5.5% respectively) than for other groups (3.3% on average). The probability of shadow employment is also the highest for those with only basic education (9.7% on average), and it falls as education attainment rises to 0.9% for those with university degree. It is, on average, the highest for those employed for private households (more than 50%) followed by construction (11.8%), agriculture (8.6%) and hotels and restaurants (6.6%). The share of employed in shadow economy is also higher in small firms with less than 10 employees (7.5% on average), and to a lesser extent for those working in companies between 10 and 50 workers (2.5%).

The time trends for most employers seem to follow the general path with the estimated incidence of shadow employment increasing until 2007 and then decreasing in construction, hotels and restaurants and also for all sizes of firms. On the other hand, interesting things happen for some groups of workers. The probability of entering shadow employment has been decreasing for the entire period for the youngest cohort and increasing for those close to pension age. The former might be related to the changing demographic situation with decreasing number of young people entering the labor market both due to natural reasons and increasing participation in tertiary education. The latter may result from changes in the disability pension system limiting the access to these kinds of benefits and resulting in increasing number of older workers with relatively low employability looking for jobs.

At the same time, the estimated probability of shadow employment kept constantly increasing for those with secondary education only, indicating a weakening position of this group in the labor market.

Last but not least, one should also observe that the estimated share of shadow employment was practically stable throughout the analyzed period for groups of workers divided according to the type of contract. It is a consequence of the strong interdependence of contract and shadow variables and it proves that most of the changes in estimated shadow employment have been driven mainly by changing structure of employment contracts.

# **4. Shadow Employment and Labor Market Transitions**

In order to run the analysis of labor market transitions between various kinds of labor market statuses using the data from the Polish LFS, one has to take advantage of its quasi-panel nature. Each interviewee in LFS takes part in the survey four times (on a quarterly basis) with two quarters of brake after the second interview. It means that there is exactly one year of break between the first and the third interview and between the second and the fourth interview. It is then possible to create a set of databases consisting of a series of biannual