Achieving the goals of sustainable development, including in the context of overcoming poverty and promoting social protection, is possible by increasing the participation of citizens in socially beneficial activities in the conditions of formal employment according to the principles of decent work. The informal and precarious nature of social-labor relations undermines the social protection system and points to the extractive nature of the national labor market. Problems of the population exiting the workforce, especially youth, poverty, and irrational mechanisms of income redistribution contribute to the formation of scientific discussions regarding the further institutionalization of the processes of building a welfare state with the determination of directions for the institutionalization of the social protection system. The study is dedicated to finding opportunities to increase social protection coverage in case of unemployment. The foreign experience of increasing the coverage of social protection through the formalization of employment was studied. The article was devoted to the search for ways to overcome the extractive challenges of the modern labor market by formalizing employment, which will increase the coverage of social protection in case of unemployment. An important goal of social protection is the prevention of poverty and the promotion and support of human inclusiveness. An imperfect system of social protection increases the risks of poverty, inequality, and social isolation. Labor markets function more efficiently when regulatory institutions create conditions for providing workers with income and social protection. The goal is to determine the possibilities of increasing the coverage of social protection in case of unemployment by formalizing employment in order to overcome the extractive character of the national labor market. The novelty of the work is the further development of the formation of a methodical basis for the formalization of employment to increase the coverage of social protection in case of unemployment in Ukraine in the context of inclusive development of society and economy. The given recommendations will allow an increase in the coverage of social protection in case of unemployment in Ukraine and reduce the level of informal employment, which will contribute to increasing the financial capacity of social funds.