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The Informal Labor Market in Colombia: identification and characterization

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  • Bernal Raquel

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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-CEDE, September.
  • Handle: RePEc:col:000090:005863
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    File URL: http://economia.uniandes.edu.co/revistadys/Articulo63_5.pdf
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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," DOCUMENTOS CEDE 006717, UNIVERSIDAD DE LOS ANDES-CEDE.
    3. Camilo Mondragón-Vélez & Ximena Peña & Daniel Wills, 2010. "Labor Market Rigidities and Informality in Colombia," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2010), pages 65-101, August.
    4. Juan Carlos Echeverry & Mauricio Santamaria, 2004. "The Political Economy Of Labor Reform In Colombia," DOCUMENTOS CEDE 003618, UNIVERSIDAD DE LOS ANDES-CEDE.
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    Cited by:

    1. Laurence Ball & Nicolás Roux & Marc Hofstetter, 2013. "Unemployment in Latin America and the Caribbean," Open Economies Review, Springer, pages 397-424.
    2. Gustavo Adolfo HERNANDEZ DIAZ, 2011. "Impuestos parafiscales y mercado laboral: Un análisis de Equilibrio General Computable," ARCHIVOS DE ECONOMÍA 008954, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    3. Nancy Aireth DAZA BAEZ & Luis Fernando GAMBOA, 2013. "An approximation to the Informal-formal wage gap in Colombia 2008-2012," ARCHIVOS DE ECONOMÍA 011196, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    4. Camilo Mondragón-Vélez & Ximena Peña & Daniel Wills, 2010. "Labor Market Rigidities and Informality in Colombia," DOCUMENTOS CEDE 006717, UNIVERSIDAD DE LOS ANDES-CEDE.
    5. Arturo Antón, 2014. "The effect of payroll taxes on employment and wages under high labor informality," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), pages 1-23.
    6. Fernando Tenjo Galarza & Enrique López Enciso & Héctor Zárate Solano, 2015. "Riesgo de crédito y la transmisión de la política monetaria en Colombia," Borradores de Economia 872, Banco de la Republica de Colombia.
    7. Paola Roldán Vásquez & Carlos Ospino Hernández, 2009. "¿Quiénes terminan en la informalidad?: Impacto de las características y el tiempo de búsqueda," REVISTA DE ECONOMÍA DEL CARIBE 007124, UNIVERSIDAD DEL NORTE.
    8. Álvaro Riascos, Miguel Bernal, Luciano de Castro and Shmuel Oren, 2016. "Transition to Centralized Unit Commitment An Econometric Analysis of Colombia's Experience," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    9. Ramon Antonio, Rosales Alvarez & Jorge Andres, Perdomo Calvo & Carlos Andres, Morales Torrado & Jaime Alejandro, Urrego Mondragon, 2009. "Fundamentos de econometría intermedia: Teoría y aplicaciones
      [Intermediate economics: Theory and applications]
      ," MPRA Paper 37183, University Library of Munich, Germany.
    10. Fernando Tenjo Galarza & Enrique López Enciso & Héctor Zárate Solano, 2015. "Riesgo de crédito y la transmisión de la política monetaria en Colombia," BORRADORES DE ECONOMIA 012616, BANCO DE LA REPÚBLICA.
    11. Andrea Otero., 2012. "La infraestructura aeroportuaria del Caribe colombiano," Documentos de trabajo sobre Economía Regional y Urbana 163, Banco de la Republica de Colombia.
    12. Cristina Fernández & Leonardo Villar, 2016. "A Taxonomy of Colombia’s Informal Labor Market," COYUNTURA ECONÓMICA, FEDESARROLLO, vol. 46(1), pages 15-50, June.
    13. Luis Armando Galvis A., 2012. "Informalidad laboral en las áreas urbanas de Colombia," COYUNTURA ECONÓMICA, FEDESARROLLO, June.
    14. Javier Armadno Pineda & Carlos Eduardo Acosta, 2011. "Calidad Del Trabajo: Aproximaciones Teóricas Y Estimación De Un Índice Compuesto," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 29(65), pages 60-105, Junio.
    15. Isabelle Joumard & Juliana Londoño Vélez, 2013. "Income Inequality and Poverty in Colombia - Part 1. The Role of the Labour Market," OECD Economics Department Working Papers 1036, OECD Publishing.
    16. Luis E. Arango & Luz A. Flórez, 2017. "Informalidad laboral y elementos para un salario mínimo diferencial por regiones en Colombia," Borradores de Economia 1023, Banco de la Republica de Colombia.
    17. David A. Hurtado & Philipp Hessel & Mauricio Avendano, 2017. "The hidden costs of informal work: lack of social protection and subjective well-being in Colombia," International Journal of Public Health, Springer;Swiss School of Public Health (SSPH+), pages 187-196.
    18. Álvaro Riascos, Miguel Bernal, Luciano de Castro and Shmuel Oren, 2016. "Transition to Centralized Unit Commitment An Econometric Analysis of Colombia's Experience," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    19. Cristina Fernández & Leonardo Villar, 2017. "Taxonomía de la informalidad en América Latina," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 015814, FEDESARROLLO.
    20. Mehling, Maxie-Lina & Boehm, Frédéric, 2014. "Corruption and Informality: Complements or Substitutes? Qualitative Evidence from Barranquilla, Colombia," MPRA Paper 54817, University Library of Munich, Germany.
    21. Gustavo Hernández, 2012. "Payroll Taxes and the Labor Market: A Computable General Equilibrium Analysis," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., pages 99-123.
    22. Luz Adriana Florez, 2015. "The Search and Matching Equilibrium in an Economy with an Informal Sector: A Positive Analysis of Labour Market Policies," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, August.
    23. Satya R. Chakravarty & Nachiketa Chattopadhyay & Conchita D'Ambrosio, 2016. "On a Family of Achievement and Shortfall Inequality Indices," Health Economics, John Wiley & Sons, Ltd., vol. 25(12), pages 1503-1513, December.
    24. Camilo Mondragón-Vélez & Ximena Peña & Daniel Wills, 2010. "Labor Market Rigidities and Informality in Colombia," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2010), pages 65-101, August.

    More about this item

    Keywords

    Informality; pension; health; job satisfaction;

    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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