To foster the development of human capital—a core asset for any nation—it is essential to establish a supportive social environment, a sustainable economy, inclusive education, an innovation-driven ecosystem, and an efficient labor market. Building an efficient labor market rooted in sound principles requires transparency and strict adherence to the rule of law, with various mechanisms ensuring labor relations adhere to these foundations.

Azerbaijan, prioritizing social values within its economic development strategy, has advanced labor market transparency through tax incentives and fiscal stimuli. Efforts to curb the "shadow economy" have included significant tax reforms, promoting transparency in labor relations. Notably, since 2019, monthly salaries up to 8,000 manats in the private non-oil sector have been income-tax exempt for a period of seven years. This reform has yielded substantial fiscal outcomes, evidenced by an increase in employment contracts and positive growth in the wage fund. Consequently, the number of new employment contracts in the private sector has risen by over 80 percent, with the majority of growth in sectors benefiting from income tax exemptions, underscoring the success of this approach.

The fiscal benefits of the income tax exemption are further reflected in the increased revenue from mandatory social insurance and unemployment contributions. The reduction in income tax revenue has been balanced by a surge in employment contracts and social contributions, strengthening the social protection system's funding. In 2023, revenues for the primary fund supporting pensions and benefits increased 2.2 times compared to 2018.

Legalizing previously informal employment has boosted the number of salaried workers, increasing the workforce's participation in formal labor markets and the pension system. This rise has expanded the wage fund, elevating its share in GDP and in the nation’s total income. Since 2018, the wage fund grew 2.3 times, with the non-oil private sector experiencing a 2.4-fold increase.

Tax-based incentives have catalyzed transparency in labor relations and positively shaped societal perceptions of formal employment. Citizens recognizing the benefits of employment contracts have become proactive participants in building lawful, transparent business relations.

The robust dynamics within Azerbaijan’s labor relations ecosystem affirm the essential role of an active tax policy. The successful adaptation to tax reforms demonstrates the promising impact of these initiatives, fostering transparency across public-private, public-community, and public-business partnerships. Azerbaijan’s experience in tax administration offers a model of effectively tackling economic challenges, highlighting that the true beneficiaries of these advances are the state, society, and, above all, human capital.