Page last updated at 23:25 GMT, Tuesday, 19 January 2010

Waiting game for Colombia's informal workers

By Henry Mance
Bogota, Colombia

"It'll do for now," says Frank Torreros, a waiter in a mid-range Bogotá restaurant.

Waiter Frank Torreros (left) collects meals in a Bogota restaurant
Frank Torreros is waiting for better times

Each day he earns 15,000 Colombian pesos ($7.40), significantly less than the minimum wage.

He has no contract, pension or guarantee of work beyond the next lunch rush.

"This is what's called an informal job," he explains, adding wryly that his best hope of formal employment is if a friend puts in a good word at an upscale country club.

As in Europe, unemployment figures make headline news across Latin America.

But it's the informal economy, a feature of the continent since the 1990s, that affects much more of the population.

At least half of Latin American workers are considered informal, whether the term is taken to mean jobs in small, unregistered firms or wherever labour standards are not met.

In Colombia, informal workers are estimated to make up 60% of the workforce, five times the unemployment rate of 11.5% (itself considerable).

Between 2003 and 2008, the country's economy boomed, but the formal job market did not.

The current recession is thought to have increased informality further. As the economy gradually picks up, should reducing the number of informal workers be a priority?

'Big search'

"The country has become used to living with informality as something natural," argues Mauricio Cardenas, an economist at the Brookings Institution.

"There's little awareness about the costs of informality for economic growth, or about what it means for social inequality."

Reducing informality could be a win-win, given that informal jobs are associated with low productivity, and the workers themselves are often the first to suffer, with poor wages and promotion possibilities.

Eva Hernandez
Eva Hernandez sells newspapers that she herself cannot understand

Among the most precariously-placed are street sellers, peddling everything from plums to phone calls.

They are participants in "el rebusque" - literally, the big search.

"We 'search' to [have money to] eat, to put our kids in school, to get by," says Eva Hernandez, who, with no formal education, is unable to read the newspapers she sells in central Bogota.

"Working informally means that you don't have the help of a company behind you. I'd have liked a formal job, but this was the best I could do."

Aged 75, Ms Hernandez has no pension to allow her to retire. "I was careless," she says.

But informal work stretches up the income scale, including bus-drivers, farmers, musicians and wholesalers.

Winners and losers

Even in seemingly grubby shopping centres, hefty wads of cash pass between traders - evidence that, away from regulation and taxes, entrepreneurship is thriving.

Employees can also benefit from being informal, as it means they avoid social security payments.

What Ms Hernandez describes as her carelessness is, for other informal workers, a deliberate strategy for short-term gain. There's little government enforcement to crack down on such opportunism.

Worker in food market, Colombia
Workers in food markets make up a big part of Colombia's informal sector

As a result, according to Alejandro Gaviria, former deputy director at the National Planning Department, one significant loser from the status quo is Colombia's healthcare system.

When the country passed healthcare reform in the early 1990s, two categories of users were created: those who would contribute a portion of their income and those who would not, namely the unemployed and informal workers.

Contributors were expected to outnumber non-contributors two-to-one. "The social security system was based around [the expectation of] formal jobs," says Mr Gaviria.

In reality, contributors today make up less than half of Colombians affiliated to the healthcare system. That places the financial burden for the healthcare on the state and on formal workers.

A recent study found that the availability of free healthcare had encouraged workers not to move into the formal job market.

Rather than rethinking the system, the Colombian government has created further incentives for workers to remain in the informal economy, by offering subsidies for poor families and encouraging micro-credit schemes.

And the underlying problem remains that the fastest-growing sectors of the economy, such as mining, are not big employers.

The way forward?

"Informality is seen as a response to reality, something about which nothing can be done. But that's wrong," says Mr Cardenas.

He advocates structural reforms, including reducing payroll taxes on employers to make it easier for them to create formal jobs.

Nobel economics laureate Joseph Stiglitz, on a recent visit to Bogota, emphasised how government tax breaks and the strong peso had encouraged Colombian companies to make capital investments rather than take on more employees.

He called for the state to promote labour-intensive sectors of the economy. Other analysts have spoken of the need for expanded higher education to reduce the numbers of unskilled workers.

But political will for such major moves appears scarce. According to Alejandro Gaviria, "Everyone says [informality] is one of the most serious issues facing the Colombian economy, but the politicians avoid the debate."

For Frank Torreros, and millions of other workers, informality may have to do for a while longer.

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