Colombia’s unemployment rate in the first trimester of 2014 stood at 10.5%, according to the Colombian tax agency (DIAN), a relatively low level for the country. Still, more than half of Colombia’s working population lacks the economic stability those statistics suggest.
The Colombian government classifies “employment” as four hours of work per day or more, and many workers, especially those within the so-called “informal” labor market, continue to live below the poverty line.
Over 60% of employed Colombians work informally, earning less than minimum wage and without pension plans or health benefits, according to the Colombian statistics agency (DANE), and 44% of those work in cash-in-hand situations in hotels and restaurants.
Why do so many work informally?
Tarcisio Rivera, president of Colombia’s largest labor organization, the Confederation of Workers (CUT), explained to Colombia Reports that “selling [cell phone] minutes or fruit on the street” is in many ways preferable to the skewed labor arrangements that often govern formal employment.
“Most people [in the formal sector] have unfair contracts,” he said, and this “has forced changes in the world of work.”
The Colombian labor market has long since been characterized by the violent repression of union organizing and other illegal practices that companies rely on to cut costs and intimidate their workforces. As recent reports from the CUT and AFL-CIO — the United States’ largest labor organization — revealed, the Labor Action Plan implemented as part of the 2012 Colombian-US free trade agreement has done almost nothing to achieve its stated goal of guaranteeing labor rights in the country.
As Rivera points out, many companies active in Colombia continue to outsource their employment to contracting firms who keep workers on rolling shifts, only able to work for a maximum of eight months before their contract is terminated and renegotiated. The shift to increasingly temporary forms of labor has even been seen within the national government, where various agencies have used a provision designed to allow for quick hiring measures has been used to convert large swaths of the public workforce to rolling employment arrangements.
Fabio Sanchez, a professor of economics at the University of the Andes, has written that cost plays a large factor in these decisions. Relatively new waws requiring that employers pay heavy additional costs have been one of the driving factors behind companies’ decisions to switch to informal employment models.
Large companies, his research establishes, have become increasingly formalized over the course of the last decade.
Colombia has the fourth largest economy in Latin America, but unemployment remains well above the rest of Latin America, where the average is 6.5 %.
Furthermore, at $319 a month, Colombia has the fourth lowest legal minimum wage in the region. This coupled with high salary tax and a complex tax code has led to an increase in people choosing to work informally.
When working formally in Colombia, taxes on salary are significant. Monthly tax on the Colombian minimum wage of $313 is $39 for healthcare and $50 towards a pension, 12.5% and 16% respectively, leaving minimum wage-earners with just $224 to live off.
Therefore many Colombians have decided to either work for themselves or work cash-in-hand for larger companies, to make their own savings and not have to pay any tax.
In the short term, this strategy may prove advantageous. In the longrun, factors like income insecurity and a lack of allocated holiday time weigh on informal workers. In the event of an emergency, and informal worker will have to cover the full costs of medical assistance.
This was proven by a 2012 study by Colombia’s Central Bank, which stated that 67% of informal workers have no scheduled vacation and 62% do not have the means to put money away for a pension or healthcare.
Who’s part of the informal workforce?
In a report by the University of the Andes, a correlation was found between education levels and informal labor in Colombia.
According to the report, which tracked informal labor from 1984 to 2009, 81.8% of people without any schooling or with only a primary school education worked informally, an average that dropped to 34.5% for those with a university degree.
Colombia’s education system has struggled as one of the lowest performing in the world on international tests. Teachers, who themselves have gone on strike over issues pertaining to unpaid benefits, complain of a lack of security and resources and unfair teacher evaluation methods.
Breakdown by city
According to a DANE report, the cities with the highest proportion of informal workers were Cucuta, in northeastern Colombia, with 72% and Monteria, in northern Colombia, with 62.9%.
2012 tax reform
In an attempt to slow down the ever-increasing number of informal workers in Colombia, a tax reform introduced in 2012 and extended in 2014 reduced the national income tax from 33% to 25%.
According to Colombian Finance Minister Mauricio Cardenas, thanks to the tax reform, “formal employment is growing at 6%.”
In a further attempt to tackle problems and decrease the numbers of people working informally, the Ministry of Labor developed COLABORA, an agency which helps those in formal work with money management and has so far reportedly helped 943,681 people.
- Interview with Fabio Sanchez, Professor of Economics at the University of the Andes
- Interview with President of the CUT
- Desempleo de Marzo es el más bajo para ese mes en 14 años (Portafolio)
- “El 68% de la población laboral activa en Colombia es informal” (El Espectador)
- Medicion del empleo informal y seguridad social (DANE)
- Aumenta el empleo informal en el país (El Tiempo)
- La mitad del empleo es informal (Dinero)
- Trabajo informal llegó al 49,6 por ciento entre junio y agosto (El Colombiano)
- Mujeres con empleo no remunerado aportaron 15,3% del PIB este año (Vanguardia)
- En Cali, 556 mil personas trabajan en la informalidad (El Pais)
- Empleo informal y regulacion laboral \ colombia y chile (Universidad de los Andes)