Colombia’s Unemployment at Historic High During Coronavirus Pandemic

In an open letter to President Iván Duque, the Hernán Echavarría Olózaga Institute of Political Science asks the government to "make the labor market more flexible and liberalize it, adopting the necessary measures to allow for hourly hiring."

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Colombia faces the highest unemployment rate in its history (EFE).

Spanish – Emilio has a small restaurant that operates through a delivery application, Rappi, in the city of Medellín. After enduring the worst of the pandemic, seeing his sales drop by half, cutting back on hours, and laying off part of his company’s plant, he returns to find a domiciliary (delivery guy) to hire. He announces it the old-fashioned way, with a sign on the corner of the business that says: We are looking for a delivery person, good knowledge of addresses, and excellent presentation required.

Not even half a day went by, and he already had six resumes in his mailbox, including two young Venezuelans. An older man passes by the business, sees the ad, and asks about the job. He has no experience as a delivery person, he has never worked in delivery, but he doesn’t care, he insists on being able to do the job, he claims to have a high school education and work experience, until recently, as a plant technician in a steel factory in the city. Late in the afternoon, the restaurant’s WhatsApp has several messages asking if the position was still open.

Emilio adds, “I would like to provide jobs for more people, and thus provide better service to customers. But I can’t. Sales have not yet fully recovered, and employing a formal delivery person for eight hours in a place with as much downtime as a restaurant is expensive. A lot of guys tell us that they work at an hourly wage. I sometimes call them, but that’s just the way it is. You have to ask them to pay benefits on their own, and you help them out with some of it because here in Colombia, there is still no way to formally hire by the hour. There are millions of these kids in the country today, unemployed and looking for work wherever they can find an opportunity.

Newly unemployed

The reality is that urban unemployment in Colombia amounts to 24% of the Economically Active Population (EAP), while the Global Participation Rate went from 63% to 55% at the beginning of this year, indicating that the real unemployment rate can exceed 30% of the population.

Global Participation Rate (GPR), Employment Rate (EPR), and Unemployment Rate (UPR) (DANE).

 

According to the National Department of Statistics (DANE), in the quarter from December 2019 to February 2020, about 22 million people were employed in the country. From March to May, this number was just over 18 million.

Construction and real-estate activities were the most-affected sectors, in percentage terms, with 31% and 32% decreases, respectively. Vehicle trade and repair have the highest number of additional unemployment, with approximately 716,000 people leaving jobs in this sector, i.e., about 18% of the newly unemployed.

Arts, entertainment, and recreation also reveal particularly worrying numbers with 629,000 fewer jobs than the previous year. The manufacturing industry also shows a massive outflow of workers with around 547,000 unemployed.

The youth (14 to 28 years old) have not been better off. Historically, young people have been the population with the highest levels of unemployment in the country. Last year, the youth unemployment rate was 18%, by April, it was 22%. Young women were the most-affected group and saw a drop of 7% in the employment rate.

The only sector that does not appear to have been affected by the pandemic, at least in terms of employment, is mining and quarrying, which, in fact, seems to have increased recruitment during the pandemic from 158,000 workers employed in the sector at the end of 2019 to 255,000 by May.

Liberalizing the Colombian labor market

In an open letter to President Iván Duque, the Hernán Echavarría Olózaga Institute of Political Science asks the government to “make the labor market more flexible and liberalize it, adopting the necessary measures to allow for hourly hiring.”

Several economists have recently advocated for the flexibility of the labor market in light of the pandemic. Consultant Martín Jaramillo advocated removing regulations that hinder hiring to ensure a quick recovery.

The economist and professor, Santiago Tobón, agrees with the consultant Jaramillo and insists on the importance of allowing hiring by the hour, eliminating parafiscal charges, and eliminating the unreasonably high interest rate.

In an interview with the PanAm Post, Eafit University economics professor Dr. Carlos Esteban Posada explained that it is crucial to liberalize the labor market. “One very important thing is the radical flexibilization of the labor market, even if it is with decrees that establish an exceptional period during which the labor market recovers, and allows for hourly hiring, renegotiation of salaries to lower pay, and decrease in the payment of parafiscal contributions.”

The economist added that “we must also rethink certain contributions and create exceptions to make the market more flexible, such as pension contributions for six months. The employer’s contribution must be eliminated or substantially reduced.”

Nevertheless, the professor is also optimistic that the Colombian economy will soon begin to show signs of recovery. “Even if these measures are not implemented, we will witness recovery in the coming months. Although this is the highest unemployment rate in our history, the financial system has not become as weak as it was during the 1999 crisis. This would allow us to provide credit support to the private sector, so the recovery process might not be as slow as it was during the previous crisis when we spent more than a decade returning to single-digit unemployment rates.”

“Economic policy is aimed at mitigating the problem of recession so that the recovery is rapid except in labor policy. If the government is not willing to make these reforms for political reasons, it will slow down the recovery of employment in the country,” concluded Posada.

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