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Poverty and labor informality in Colombia

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  • Torres Roberto Mauricio Sánchez

    (Department of Economics, National University of Colombia, Bogotá, Colombia)

Abstract

Labor informality and poverty are at high levels in Latin America. In developing countries, poverty and the labor market are related not through unemployment but through employment. The purpose of this paper is to analyze the link between labor informality and poverty in Colombia. To do so, earnings gaps associated with labor informality are estimated; then, the effect of formalization on poverty is calculated, as the influence of changes in labor informality on Colombia’s poverty reduction from 2002 to 2013. The findings show that the earnings gap between formal and informal workers is 37–44%, and if informality were eliminated, poverty would decrease by approximately 40%. However, even though informality has great potential to reduce poverty, its actual effect on Colombia’s poverty reduction in the years analyzed was low.

Suggested Citation

  • Torres Roberto Mauricio Sánchez, 2020. "Poverty and labor informality in Colombia," IZA Journal of Labor Policy, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 10(1), pages 1-20, March.
    • Handle: RePEc:vrs:izajlp:v:10:y:2020:i:1:p:20:n:17
    DOI: 10.2478/izajolp-2020-0006
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    References listed on IDEAS

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    More about this item

    Keywords

    poverty; Colombia; labor informality; earnings gaps; selection bias;
    All these keywords.

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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