Informal Economy in Colombia: A Growing Trend
A concerning increase
Colombia's informal economy is on the rise, according to data from the National Administrative Department of Statistics (DANE). Between April and June 2024, the proportion of informal workers increased to 55.9%, up from 54.3% in the same period in 2023.
This increase represents a reversal of a three-year decline in informality. From 2020 to 2023, the informal economy had been gradually shrinking, reaching a low of 53.4% in the first quarter of 2023.
Causes of the increase
Several factors have contributed to the recent increase in informality. One is the economic slowdown caused by the COVID-19 pandemic. Many formal businesses were forced to close or downsize during the pandemic, leading to job losses in the formal sector.
Another factor is the lack of decent work opportunities in the formal sector. Many workers are unable to find jobs that pay a living wage or provide adequate benefits, so they turn to the informal economy for survival.
Consequences and concerns
The growth of the informal economy has several negative consequences for Colombia.
- Reduced tax revenue: Informal workers do not pay taxes, so the government loses out on potential revenue that could be used to fund public services.
- Increased inequality: Informal workers often earn lower wages and have fewer benefits than formal workers, which contributes to income inequality.
- Lack of social protection: Informal workers are not covered by social security or health insurance, which makes them vulnerable to poverty and ill health.
Addressing the problem
The Colombian government has taken some steps to address the problem of informality. In 2021, the government launched a program to formalize 1 million informal workers by 2024. The program provides financial incentives to formal businesses to hire informal workers and offers training and support to informal workers.
However, more needs to be done to address the root causes of informality. This includes promoting economic growth, creating decent work opportunities in the formal sector, and improving social protection for informal workers.
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