Labor informality is the result of a set of public policies that generate incentives for companies to stay small or so that people continue to work on their own.
To overcome it, A deep change in the regulation that favors the productivity and sustainable growth of the economy is required.
In it Santiago Levy, Senior Fellow not resident in Brookings Institution, and Cristina Fernández, professor at the Universidad del Rosario, coincided, Those who participated in the Panel “What transformation does the labor market require as a vehicle for growth?”, Within the framework of the Colombian Business Congress organized by the National Association of Entrepreneurs of Colombia (ANDI), which was recently developed in Cartagena.
When analyzing why the country fails that its economy grows at a good pace, Levy said that Colombia’s central problem is not investment or human capital.
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In his opinion, a lot of capital and human resource is wasted – without ignoring the training challenges – because The vast majority of companies have very low levels of productivity and many people work on their own.
“Mexico has a similar problem and its growth is mediocre, despite the fact that export performance is outstanding. Today it sells more manufactures than all Latin America together, but the impact in growth and productivity is void because most of its companies remain small,” he said.
Santiago Levy, Senior Felow not resident in Brookings Institution,
Courtesy
In his concept, the greatest error of that country in the last 25 years has been not paying attention to the labor market.
Levy considers that informality in Colombia reflects very deep regulatory problems, similar to those of Peru, Ecuador or Mexico. These are public policies in labor, tax, social and credit security that generate strong incentives for companies to remain small or for people to prefer to work on their own.
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“What productivity can a company have with three or four people? If you want to train one, you would run out of 30% of your workforce to produce … None would sacrifice that level of production. If they are 100, you are likely to do so. And what economy of scale can be there,” said Levy.
He also said that countries have not wanted to address this set of regulations that deform the productive structure. “A country cannot grow with 3% of companies – in reference to the large ones – while most remain behind, ”he said.
Cristina Fernández, professor at the University of Rosario.
Courtesy
It is also a poverty trap
For his part, Cristina Fernández warned that there is a business fabric problem. To this is added that more than 10 million people work on their own, a number equivalent to that of employees, and that a good part does so in small businesses.
With these data, he joined the diagnosis of Santiago de Levy: “There are incentives for people to continue working on their own and for companies to stay small. That is one of the big problems that Colombia has.”
(In addition: informality, an obstacle to achieving inclusive growth).
The academic stressed that the figures of those who work on their own are alarming and represent a poverty trap. “It has been detected that the transitions of self -employed workers are very low. They tend to stay like this, not because it is beneficial, but because it is difficult to make the leap.” To this is added the low incentive to training, which affects the conditions of poverty.
On the reasons for this extensive informality, Fernández said that there are regulatory asymmetries. One of them is that for informal it is expensive to pay social security.
Labor informality problems is a evil from countries such as Mexico, Peru and Colombia.
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To do?
Levy insisted that aspects such as social security should be reviewed. “A company is required to register its health and pension workers, while an informal government itself affiliates it and guarantees access to the same services of the contributory regime”. The formal or informal gives the same health services, with the difference that the first they are charged and the second ‘they are given’.
He also questioned that there are rules of the game in tax matters that benefit SMEs, because this discourages their growth. “The companies that are in the either of the threshold of these laws, the last thing they want to do is grow, because if they comply with the law, the tax change kills them,” accurate.
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The expert proposed to stop looking for a single cause to solve informality. “We need systemic diagnoses that identify the set of factors that are generating this problem and then design a way to start addressing them.” He recalled that in Colombia more than 93 changes in labor matters have been made between 1991 – when the Constitution entered into force – and 2020.
Finally, Fernández He considered that it is essential to have an integral vision of the problem, with an analysis that articulates social statistics and productivity.
Constance Gómez Guasca
Portfolio writing
