A recent study conducted by BBVA, in collaboration with the bank’s economist, Maria Claudia Llanes, paints a sobering picture of formal employment in Colombia, with less than half of the country’s population holding formal jobs. However, the nation has made noteworthy progress toward formalizing the workforce in recent years.
According to the research, in 2019, only 44% of Colombian workers had formal employment, which means they had a contract, received benefits, and were covered by social security for health and retirement. Fast forward to today, four years later, and the figure has seen a slight increase, now standing at 47% of the total workforce.
Despite improvements, working conditions in formal employment remain less than ideal, as the workweek, which was historically 48 hours per week, has been reduced to 47 hours and aims to be further reduced to 42 hours by 2026. Nevertheless, the conditions offered by formal employment are substantially better.
Formality Offers Better Salaries
Formal employment also offers better wages. Although the minimum wage, which a significant number of formal workers in Colombia receive, is set at 1,160,000 pesos (270 dollars) for 2023, it still exceeds the earnings of many informal workers.
Certain sectors, such as finance, information and communications, and the public sector, pay approximately three times the minimum wage. In contrast, traditionally more informal sectors like agriculture and accommodation pay less than the minimum wage.
While there has been a slight trend towards formalization in recent years, several factors need to change to accelerate this pace. The primary factor is the need for a favorable economic environment, which differs from the current conditions characterized by inflation and high interest rates that impact the cost of living, hindering economic growth and job creation.
Another, perhaps less noticeable but equally important factor, does not depend on business conditions, legal regulations, or the economic environment. It is more about the mindset of a population accustomed to informal work, which may have lower earnings but doesn’t involve paying taxes.
Nearly 13 Million Colombians Lack Social Security
According to data from the National Administrative Department of Statistics (DANE) for the period from June to August 2023, Colombia had an informality rate of 56%. This represents a decrease of nearly two percentage points compared to the same period the previous year when the informal workforce was at 57.9%.
The data also underscores the situation as it reveals that out of the 23.1 million employees, 10.1 million work in formal employment, while 12 million work in informal conditions.
While this employment status is quite diverse, encompassing everything from street vendors to independent construction workers, it presents significant challenges for these workers in the present. These challenges become even more significant in the future as none of them contribute to a pension fund for retirement.
In 2019, nearly 22 million workers in Colombia were affiliated with the general pension system, which includes both public and private components. To qualify for a pension, individuals must have contributed for 1,300 weeks, equivalent to 25 years, and must have reached the legally established retirement age.
Currently, the retirement age is 57 for women and 62 for men. Furthermore, starting in 2036, the required weeks of contribution for women will be reduced to 1,000 weeks, or 19 years.