Labor informality in Colombia, close to falling into a scenario of stagnation

One of the issues that is attracting the attention of experts these days has to do with the labor market and the influence that the economic slowdown that the different productive sectors are currently experiencing, especially commerce and construction, which are large job generators, on the market’s capacity to generate new jobs.

At this point it is worth remembering that the country has had double-digit unemployment for more than three months and that the projections for the moment suggest that the bad pace will continue until mid or late 2025, even reaching scenarios where unemployment It can be around 12%.

Now, at this point, it is necessary to pay attention to another aspect of employment generation, which although it does not give warning signs for now, is at very high levels for analysts. It is about labor informality, a scourge that currently affects more than 50% of Colombians who have a job.

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A recent report from the Anif Center for Economic Studies focused its attention on this indicator and found that the very slow pace that is marking its recovery could be considered almost like a stagnation of the same and that its trend could change, given that for the moment the economy plays against this phenomenon.

The analysts in charge of this report began by highlighting that the scope or magnitude that informality can have within the local context is a reflection of the quality of work, as well as productivity. In this sense, they highlight that high rates of informality reflect a certain precariousness of living conditions and This is why the problem requires special attention.

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In this sense, they explained that “poor working conditions mean that workers do not have health insurance in case of illness or coverage from the pension system that allows them to insure themselves in their old age.”

Factors such as salary and purchasing power are also determining factors. when analyzing the negative effects of labor informality, especially when this generates that there is not enough purchasing power to inject dynamism into the economy, which in Colombia is not doing well at all.

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Among the barriers that work against this factor, Anif highlights that the minimum wage is one of them, since “it is an entry barrier to this social security system”, which currently has a large number of excluded people who They depend on aid and coverage from the State.

“In terms of results, the first quarter of 2024 showed a national informality figure that stood at 56.3%, which represented a decrease of 1.9pp compared to the same period last year. For its part, the figure for the 13 cities and their metropolitan areas was 41.4%, evidencing a reduction in 1.4 percentage points compared to the first quarter of 2023,” says the report.

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When interpreting the results of the current moment of the labor market, Anif states that the current data is “good news, since improvements are evident with respect to the formality of employment in the places where the largest number of workers are concentrated.”

“However, the figure for populated centers is worrying and dispersed rural, which, although it presents a decrease of -0.7pp in the same analysis period, stands at 84.1%. In this way, the gap in formality between the national rate and rural areas is 27.8pp. For the same period last year, the gap was 26.7pp,” the analysis adds.

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Although things are not bad at the moment in terms of labor informality, the report maintains that special attention must be paid to the low levels of recovery that are occurring, especially when there have already been several months in which its variation is what For statesmen it is considered “non-determining.”

“It is worth mentioning that informality in the country, although it has a decreasing trend, it has a slow improvement and remains in relative stagnation. The data show that the country’s informality rate has remained with little variability since the second half of 2023 and that, since the first half of 2021, it has only been able to decrease by 4.5pp,” the report maintains.

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To better understand this panorama, Anif zooms in on the fact that the gap worsened by 1.1 percentage points, as a result of the fact that informality in rural areas was reduced to a lesser extent than in the rest of the country and that when reviewing the figure by gender , the informality rate for women was 53.7% and that for men was 58.1%, for a gap of 4.4 points in total.

“At the national level, women have a greater impact on the formal dynamics of employment than men. However, as we have reiterated, they have a higher unemployment rate. In other words, although a greater proportion of working women are affiliated with social security, more men receive some type of remuneration or income from work.which shows greater participation in the labor market,” they concluded.

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Finally, for the Anif Economic Studies Center, we must pay attention to how this whole panorama can be improved with the labor reform that is about to be presented in Congress, since there are identified shortcomings that can be attacked with the correct incentives in matter of employment generation.

“It is undeniable that, if the majority of Colombians earn less than a minimum, That salary is an entry barrier that marginalizes workers from contributing and having the right to a dignified old age. Rethinking coverage and access mechanisms is essential to reduce the levels of informality that so characterize our labor market,” they concluded.