This blog is published as part of a series as part of the OECD Local Development Forum 2025 Annual Meeting “Global inspirations, local transformations” which took place on 8-11 July in Barranquilla, Colombia . Places around the world are rethinking how to stay competitive amid rapid technological shifts, the green transition, and evolving global value chains. As the 2025 Forum heads to Barranquilla, Colombia, Latin America’s first host city, it offers a unique lens on global trends shaping the future of local development, inclusive growth, and how places can create good jobs and better lives. Learn more and register to join the Forum here.
In Colombia, most workers don’t get a formal payslip or a pension. In 2024, 55.4% of the workforce were in informal employment – earning their living in jobs without a formal job contract, legal protections or contribute to social security.
Informal workers aren’t necessarily doing anything wrong – they might be running small shops, driving taxis, or working on farms. But it means their jobs are less stable, less safe and offer less benefits and room to progress. And for the state it means lower tax revenue, weaker productivity, and a more fragile economy. How can Colombia turn the corner on informal work?
A tale of two Colombias
Informal work presents a real challenge for policy makers across Latin American and the Caribbean. But Colombia has one of the highest rates – ahead of Chile and Brazil, for example. There has been progress – since 2010, the rate of informality by has fallen by 14 percentage points since 2010 – but to go further requires stronger local labour markets.
In stronger labour markets like Bogotá, Medellín and Manizales, the rates of informal work are below 35%, while in Sincelejo, Riohacha, and Valledupar rates rise to 65%, and to 80% in rural labour markets.
Urban informal workers are typically young, under 25, with lower levels of education. They often work in micro-enterprises or are self-employed, while larger businesses employing more than 50 people, account for over 60% of formal urban jobs. Fewer than 3% of workers in these firms are informal.
In rural areas, informal workers are mainly concentrated in the primary sector (agriculture, livestock and mining), typically with low levels of formal education, and tend to be self-employed or hired as day labourers.
Rates of informal work vary widely across Colombia’s regions
Urban and National Labour Informality Rates, 2010–24
Informality is concentrated in small and micro enterprises
Labour Informality by Enterprise Size, 2010–2024
Why are so many Colombians in informal work?
The roots of informality are deeply embedded in Colombia for many reasons.
First, tax and labour regulations discourage small businesses and self-employed individuals from formalising. For them, the cost of making work formal – both in money and time – is simply too high.
Small businesses feel they can’t afford to pay the relatively high minimum wage, with nearly half the workforce earning below this level, especially for workers with limited education, poorly prepared for the world of work.
Tax and regulatory frameworks add to these costs. Second, small businesses are often not able to scale-up their activities and develop new, more compliant systems due to a lack of finance and business support.
These problems are most acute in weak local labour markets – where poor skills and low value activity do not justify the costs of formalising work.
What has Colombia tried so far?
Colombia has not stood still. Over the past decade, the government has introduced a series of reforms to tackle informality. The First Employment Law of 2010 offered incentives to firms hiring young people and provided tax incentives and easier processes for formalising businesses. Further reforms followed to reduce payroll taxes and allow for more flexible social security contributions. During the COVID-19 pandemic, emergency measures helped protect jobs and businesses to prevent more falling into informal work.
Rates of informality have reduced but remain uncomfortably high, and many policies often do not reach the most vulnerable groups or are hard to access due to bureaucracy and red tape.
Further action is needed at all levels. At the national level, support mechanisms are needed to help businesses scale into sustainable businesses rather than remain as subsistence activities. Labour and tax legislation must become more flexible, enabling micro and small enterprises to hire workers formally at lower cost.
Greater use of digital tools to streamline tax administration and simplify social security contributions could also reduce barriers, particularly given the high time costs currently associated with these processes.
But targeted place-based action is needed too – to boost worker skills, support new higher-value start-ups and attract new investment and jobs to regions where informality dominates.
Building a path to inclusive employment
Colombia has made progress in tackling precarious informal work. Now it must go further – and build a system that combines national policies with local action. One that recognises the challenges facing small businesses, lowers the barriers to formality, supports the creation of better jobs and skills in the regions that need it most.
Because with more formal work, everyone benefits: workers gain security, businesses gain talent, and communities gain resilience.
OECD support for Colombia’s efforts to reduce informality and boost inclusive labour markets
The OECD provides a suite of country-specific analyses and policy tools to support Colombia’s transition toward more formal and productive employment. Relevant publications include OECD Reviews of Labour Market and Social Policies: Colombia 2024, OECD Economic Survey of Colombia 2024, and From Informal to Formal Jobs: The Contribution of Cooperatives in Colombia, offering guidance on tackling informality, improving labour protections, and leveraging cooperatives as pathways to formalisation.
