1, July, 2016
REGIONAL EVIDENCE PAPER

Informality and Inclusive Growth in Latin America: The Case of Colombia

This research seeks to understand the impact of informality on inclusive growth in Latin America, particularly in Colombia, taking into account the different types of informality and their causes.

The purpose of this research is to understand the impact of informality on inclusive growth in Latin America, and particularly in Colombia. The relationship between informality and inclusive growth is represented by two different hypotheses. According to the traditional view, informality constrains inclusive growth by restricting growth of the formal sector, draining resources from the public treasury and supplying low quality jobs that are unable to provide adequate conditions for a better standard of living. However, from another point of view, informality is a default alternative to unemployment, particularly among poorly educated individuals; a perspective that is rarely taken into account in Latin America.

The present analysis leads to important policy recommendations that are relevant not only in Colombia but in most developing countries. While some informal workers might benefit from the removal of barriers to formal employment or affirmative action, structural informality must be tackled with different kinds of policy, such as improving access to education and flexible pension systems. Similarly, in the case of voluntary informality, monitoring and controlling informal professionals might be effective, whereas the same approach applied to structural informality might produce a negative impact on inclusive growth.

AUTHORS:
Leonardo Villar
Cristina Fernández

The authors of this research work at Fedesarrollo, Colombia.

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