Colombia’s Informal Employment Hits Five-Year Low

Labor informality in Colombia fell to 54.7% in May, its lowest level in the past five years. The figure, released by the National Administrative Department of Statistics (DANE), marks further progress in one of the most persistent structural problems in Colombia’s labor market.

In addition, the news comes at a time when the economy continues to generate jobs despite domestic and external economic uncertainty in recent months, amid a context of strong internal political polarization and war in the Middle East.

The reduction in informality is particularly significant because it occurred after the sharp 23% increase in the minimum wage that took effect in January, amid strong controversy due to opposition from business associations and Colombia’s political right.

While these sectors warned that the increase, along with the resulting rise in labor costs, would push more workers into informal employment, the figures show a different trend: unemployment remains around 8%, one of the lowest levels in decades, and the share of informal workers not only did not increase but registered a new decline.

Although informality remains the main problem in Colombia’s labor market, it is worth highlighting that during the Petro administration (2022-2026), it has fallen by 3.3 percentage points, despite repeated minimum wage increases above annual inflation.

Colombia’s informal employment hits five-year low

The performance of the labor market has drawn attention because it contradicts many of the warnings issued by various economic sectors following the minimum wage increase implemented in January.

Traditionally, there is concern that significant increases in labor costs could encourage companies to reduce hiring, slow the creation of new job openings, or move workers into informal arrangements to cut expenses. However, the data available through May does not show such a scenario.

On the contrary, informality not only stopped increasing but declined again. The result suggests that, at least during the first months of the year, the wage adjustment did not lead to a deterioration of the labor market or a massive shift toward forms of employment without social protection.

This does not mean that the debate over the effects of the minimum wage has ended. Economists warn that these impacts may take several months to become fully reflected in official statistics, especially among small and medium-sized businesses. Nevertheless, the latest snapshot shows a much more favorable picture than many had anticipated.

The reduction in informality coincides with another equally positive indicator for Colombia’s labor market. In May, the unemployment rate stood at 8%, the lowest figure for that month since comparable records began and one of the best results observed in several decades.

The figure reflects the continued growth in the number of employed people and shows that the labor market maintains a stronger capacity to absorb workers than in previous years.

The combination of single-digit unemployment and a decline in informality is especially relevant because, historically, both indicators have not always moved in the same direction. In some periods, employment increases, but mainly through informal jobs. This time, the figures show simultaneous improvement on both fronts.

The progress also coincides with higher labor force participation and an increase in the employment rate, signs that more people are entering the labor market and finding jobs.

📊👥 Estos son los datos más recientes sobre informalidad laboral en Colombia:

🙋🏽‍♂️💼 En el total nacional, durante el trimestre marzo–mayo de 2026, la proporción de personas ocupadas en la informalidad fue de 54,7%.
La cifra presentó una disminución de 1,2 puntos porcentuales… pic.twitter.com/meoyuxen3f

— DANE Colombia (@DANE_Colombia) July 10, 2026

A problem that remains enormous

Despite the improvement, informality continues to be one of the main structural challenges facing the Colombian economy. The fact that the indicator has fallen to 54.7% means that more than one out of every two workers still earn their income through activities that do not provide full access to social security, job stability, or protection against contingencies such as illness, accidents, or retirement.

Territorial differences remain significant. While major cities show considerably lower levels of informality, rural areas maintain much higher rates, where informal employment continues to be the predominant form of labor participation.

This reality limits productivity, reduces contributions to the social security system, and keeps broad sectors of the population in conditions of greater economic vulnerability.

Nevertheless, despite the slight overall improvement, labor informality remains —as throughout the rest of Latin America— one of the main problems in the labor market. A single highly revealing figure is enough to illustrate this: in Colombian microenterprises —companies and productive units in general with a maximum of 10 workers— eight out of every 10 employed people are informal. Overall, the informality rate in microenterprises reached 84.5% in the second quarter of 2026.

At the same time, it is important to recall the fiscal crisis, marked by a significant increase in the public deficit and a tax reform that the incoming government has already announced it will present imminently in an attempt to manage this complicated moment facing the country’s public finances.

The coming months will be crucial in determining whether the economy can maintain the creation of formal jobs in an environment that continues to face challenges such as high interest rates, inflationary pressures, and a slowdown in some productive sectors.