Surprisingly high level of unemployment and informality in Colombia, says expert

Current situation in Colombia calls for a labor market reform.

Expert recommends pegging the minimum wage to observed inflation in order to gradually approach levels consistent with productivity.

Payroll taxes must be reduced, especially for lower wages, in order to generate new jobs.

On analyzing the Colombian labor market in an international context, the winner of the Nobel Prize in Economics, Christopher Pissarides, described the unemployment rate, the degree of informality and the resulting low productivity compared to other countries in the world as excessively high.

“10% unemployment is not acceptable, especially for an economy that has been growing by 4% in the last two years,” said Pissarides. “Something is wrong with the labor market,” he added.

Based on his experience in labor matters, Pissarides said that the country had to eliminate barriers present in the market in order to reduce high informality and unemployment rates, since these are the driving force of low productivity, inequality, non-redistributed taxes and low social security coverage. Hence, conditions must be created for generating formal employment through the promotion of education, training, and more flexible working conditions, with incentives such as a reduction in payroll taxes, especially for lower wages; sectoral salaries and wages differentiated by age, among other measures.

In particular, he mentioned that Colombia – one of the countries with the highest minimum wage levels – should adjust such income if it wants to promote job offers and favor those who are least qualified.

The winner of the Nobel Prize in Economics pointed out that, “Due to its wealth in natural resources and its growth rate, Colombia should have an unemployment rate of less than 6%, less than 30% informality and an employment rate of 70% of the population of working age.  He also recommended that all workers should have access to social security.”

According to Pissarides, conditions in Colombia are ripe for a reform.

“Don’t expect miracles and be patient,” since the results of these types of reforms can only be appreciated in the long term.