One of the main obstacles facing the Colombian labor market is the disconnect that exists between labor legislation and the realities of the labor market. The inflexibility in formal hiring, the inequality in working conditions between men and women and the lack of compatibility between the existing vacancies and the capacities of the job offer, are impediments when it comes to hiring.
Hence, the ANIF think tank, in a careful analysis of this situation, says that the proposed reform, by seeking to put more conditions and obstacles at the time of formal contracting, accentuates this problem and generates perverse incentives for informal employment is generated to a greater extent or, even, unemployment.
It is necessary to remember that employment in the country is concentrated in self-employment and in microenterprises. According to data from the 2022 household survey, 66% of employed people were self-employed or in establishments with 10 or fewer employees. These are businesses that are part of the daily life of Colombians and that have very limited capacities to fully comply with the labor costs that formality implies. In the case of self-employment, to a large extent it is made up of people who, due to the need to earn means of living and the lack of opportunities they face to find employment, have had to resort to what is called “subsistence entrepreneurship”. .
Income
For example, 78% of self-employed workers have monthly labor income less than or equal to the minimum wage and this is also the case for 67% of people who are employed in businesses with 10 or fewer workers. The low productivity that usually occurs in these forms of work limits their growth and highlights the difficulties in complying with the rigidities that formality implies. In contrast, the largest companies hire the vast majority of their employees with incomes greater than or equal to the minimum wage, but they only have 34% of the total number of workers in the country.
Similarly, 80% of self-employed people do not have any type of contract. In smaller businesses, with 10 or fewer workers, only 22% have a fixed-term or indefinite-term contract. On the other hand, within companies with more than 10 employees, 80% of workers have fixed-term or indefinite-term contracts, which is consistent with formal jobs with income greater than or equal to the minimum.
Productivity
Therefore, although 62% of the employed do not have a fixed-term or indefinite-term contract, there is a high concentration of this reality in self-employment and in very small businesses for which it is very complex to maintain employment with higher salaries and hiring requirements. It is clear then that the majority of entrepreneurs are ordinary people who get up every day to carry out their business with high budget restrictions.
For this reason, the high accumulation of people in self-employment and in very small, low-productivity businesses prevents them from coping on many occasions with rigidities present in labor regulations, thus leaving them in precarious conditions, in informality and, therefore, therefore, unprotected from social security. Therefore, it is feared that the reform proposals serve to benefit those few who are already in good conditions, at the cost of excluding those who present greater difficulties in complying with these regulations, further limiting the growth capacity of businesses. smaller, the creation of new companies and as a result the creation of more and better jobs.
Expand discussion
From ANIF “we call for the discussion of the reform to include the different organizations, think tanks, unions and unions that are part of the debate, but also formal and informal workers, self-employed workers, unemployed and small businessmen, so that the final articles are built according to the dynamics and needs of the Colombian labor market. A reform full of good intentions is useless, if on paper it ends up negatively affecting workers when it comes to materializing”.
Undoubtedly this year is complex in economic matters for Colombia. Despite the path traveled in the recovery, an economic slowdown is expected, both due to the global outlook and to the normal behavior of the economy, after a period of overheating with high inflation, due to high growth driven mainly by consumption and a contractive monetary policy, which is consistent with the main objective of the Banco de la República. In addition, additional rigidities could be included in labor regulations that could play against formality and even job creation.
The report states that “at ANIF we have growth expectations for the year 2023 close to 0.9%, which are similar to the projections of the monetary authority (0.8%). All of the above means that our expectations regarding the economy’s ability to generate jobs are low. Consequently, by the end of 2023 we continue with our projection of an average unemployment rate for the year between 11.5% and 12%, which is considerably higher than the 11.2% achieved in 2022. In particular, we fear a further deterioration during the second semester of the year.
They explain that “for the month of March that just ended, our projections indicate an unemployment rate between 10.9% and 11.4%, which would represent a decrease of between 0.7% and 1.2% compared to March 2022 (12.9%). .
The population outside the labor force
The unemployment rate of the national total reported a figure of 11.4%, which, although it is lower than the data for February 2022, it is relevant to note a significant increase in the population outside the labor force that could explain part of the reduction in unemployment. number of unemployed, since the Occupation Rate and the General Participation Rate are still below the data prior to the health emergency.
Additionally, we observe a positive dynamic for private employment, mostly formal, with respect to self-employment, which is mostly informal. However, both occupational positions have 9.4 million working people. Given the worst conditions of self-employment, which in many cases arises in the form of subsistence enterprises, it is necessary to work so that companies can grow to generate more and better jobs.
For their part, the gender gaps do not present significant improvements. The gaps in the unemployment rates of men and women, although they return to pre-pandemic figures, reflect the zero progress in the last three years and show that the correction of employment after the pandemic did not represent progress for the situation of women within the working market.
Finally, we fear that the labor reform proposal presented by the Government will result in less capacity to create formal employment and, consequently, in a greater concentration of employed people in self-employment, as well as greater informality in the composition of private employment. We highlight that a reform that is alien to the context of the labor market in which it intervenes could have negative repercussions on informality and unemployment.