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The Informal Labor Market in Colombia: identification and characterization

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  • Bernal Raquel

Abstract

In this paper, we study the extent and nature of informality in Colombia by using the new chapter on informality in the Encuesta Continua de Hogares (ECH) from August 2006 to December 2006, which includes new questions deepening the information on coverage of social protection benefits, labor market trajectories, and motivations for sector of employment. The availability of these new data allows us to measure informality in several ways and understand the differences and implications of using various definitions. We show that social security contributions is a reasonable measure of informality as it is a good indicator that the individual has the entire package of benefits associated with formal employment. We then use this definition of informality to characterize informal workers in various dimensions that include socio-demographic characteristics, characteristics of the firm and job satisfaction measures. The main objective is to understand what types of individuals belong to formal and informal sectors, study the incentives and motivations of workers for belonging to one or other segment of the labor market, and analyze the consequences of not being covered by the regulatory framework. In doing this, we hope to gain some understanding about how different policy interventions could influence individuals´ occupation choices and workers´ well-being. In this paper, we study the extent and nature of informality in Colombia by using the new chapter on informality in the Encuesta Continua de Hogares (ECH) from August 2006 to December 2006, which includes new questions deepening the information on coverage of social protection benefits, labor market trajectories, and motivations for sector of employment. The availability of these new data allows us to measure informality in several ways and understand the differences and implications of using various definitions. We show that social security contributions is a reasonable measure of informality as it is a good indicator that the individual has the entire package of benefits associated with formal employment. We then use this definition of informality to characterize informal workers in various dimensions that include socio-demographic characteristics, characteristics of the firm and job satisfaction measures. The main objective is to understand what types of individuals belong to formal and informal sectors, study the incentives and motivations of workers for belonging to one or other segment of the labor market, and analyze the consequences of not being covered by the regulatory framework. In doing this, we hope to gain some understanding about how different policy interventions could influence individuals´ occupation choices and workers´ well-being.

Suggested Citation

  • Bernal Raquel, 2009. "The Informal Labor Market in Colombia: identification and characterization," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, September.
    • Handle: RePEc:col:000090:005863
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    References listed on IDEAS

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    1. Mauricio Cardenas & Raquel Bernal, 2004. "Determinants of Labor Demand in Colombia. 1976-1996," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 229-272, National Bureau of Economic Research, Inc.
    2. Camilo Mondragón-Vélez & Ximena Peña & Daniel Wills, 2010. "Labor Market Rigidities and Informality in Colombia," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2010), pages 65-101, August.
    3. James J. Heckman & Carmen Pagés, 2004. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Books, National Bureau of Economic Research, Inc, number heck04-1.
    4. Juan Carlos Echeverry & Mauricio Santamaria, 2004. "The Political Economy Of Labor Reform In Colombia," Documentos CEDE 3618, Universidad de los Andes, Facultad de Economía, CEDE.
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    More about this item

    Keywords

    Informality; pension; health; job satisfaction;
    All these keywords.

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions

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