More Than Half of Colombia Still Works Informally
Colombia is creating jobs and reducing unemployment, but behind that improvement remains one of the most difficult structural problems in its economy: for more than half of the people who work in the country, having a job still does not necessarily mean having access to formal employment. The latest informal employment bulletin from DANE, Colombia’s National Administrative Department of Statistics, covering the May-July 2026 moving quarter, placed the national share of informally employed people at 54.6%. A year earlier, it stood at 55.0%. The 0.4 percentage-point decline confirms an improvement, but it also exposes the scale of the challenge: out of every 100 employed people in Colombia, approximately 55 continue to work under conditions statistically classified as informal.
The picture is particularly relevant because it coincides with a labor market that, viewed through other indicators, has shown encouraging signs. In July 2026, the national unemployment rate fell to 8.1%, from 8.8% a year earlier; the employment rate rose from 58.9% to 59.5%, while labor force participation reached 64.8%. In other words, Colombia has proportionally more people working and fewer people looking for jobs without finding them, but the quality and formality of a large share of those jobs remain unresolved issues.
It is important to highlight that a lower unemployment rate does not automatically mean that people finding jobs are entering positions with full labor protections. Colombia’s problem is not only about creating jobs, but also about ensuring that a larger share of those jobs are tied to formalized labor relationships and businesses, with social protection and real opportunities to build economic stability.
What this means: 54.6% of workers are informally employed
Informal employment does not simply refer to street vendors or people working in public spaces. DANE’s definition is much broader. In the case of salaried workers and domestic employees, for example, those who do not have health and pension contributions linked to their employment relationship are considered informal. For self-employed workers and employers, the classification also takes into account the characteristics of the economic unit in which they work, including elements related to registration and accounting. Unpaid workers are also classified as informal by definition.
For that reason, saying that 54.6% of the employed population is informal does not strictly mean that all of those people are completely outside the health system or that none of them will ever have access to a pension. What the indicator does show is that their work does not meet the formality criteria defined by DANE and that a very significant share of the labor force remains outside the protections and contribution mechanisms typically associated with formal employment.
The trend over recent years shows gradual progress. For the same May-July period, national informality stood at 59.1% in 2021, fell to 57.8% in 2022, to 55.9% in 2023, remained at 55.9% in 2024, declined to 55.0% in 2025, and reached the current 54.6% in 2026. The cumulative decline is significant, but it also shows how slowly a deeply rooted labor structure changes.
Differences by sex also remain. DANE reveals that among employed men, informality stood at 56.9%, compared with 57.3% a year earlier. Among employed women, it reached 51.5%, compared with 51.7% in 2025. That leaves a 5.4 percentage-point gap between men and women nationwide. In the 13 largest cities and metropolitan areas, the difference is smaller: 41.4% among men and 39.6% among women. Both indicators improved compared with 2025, when they stood at 42.9% and 40.9%, respectively.
But 54.6% is not merely a labor market figure; for Colombia, having more than half of the employed population working informally carries fiscal, social, and productive consequences. It means that millions of people generate income without being fully integrated into the mechanisms that finance social security, reducing the contributor base of the pension system and limiting the country’s ability to expand social protection. It also leaves many households more exposed to illness, sudden income loss, or old age, because informal jobs generally provide less stability and fewer safety nets.
Economically, such a high level of informality is also associated with low-productivity businesses, reduced access to credit, and fewer opportunities to grow, invest, and hire formally. That is why 54.6% does not simply describe how millions of people work: it also reveals one of the main barriers Colombia faces in building a more productive economy, reducing inequality, and sustaining a social protection system financed by a broader labor base.
Two labor markets divided by geography and company size
The gap becomes most dramatic when Colombia’s largest cities are compared with rural areas. While informality stood at 40.6% in the 13 largest cities and metropolitan areas, and at 41.9% across the 23 cities included in the survey, it reached 83.2% in populated rural centers and dispersed rural areas. This means that more than 8 out of every 10 employed people in the rural areas analyzed work informally. The rural indicator also edged up, from 83.1% in May-July 2025 to 83.2% in 2026.
The distance from the largest cities is substantial. Since 2021, national informality has fallen from 59.1% to 54.6%, while in the 13 largest urban areas it dropped from 44.5% to 40.6%. In rural areas, by contrast, it declined from 86.7% to 83.2%. The gap makes one thing clear: formalizing Colombia’s labor market requires territorial policies. The productive, business, and institutional conditions in Bogotá are not the same as those in a small rural community.
Differences between cities are also wide. Sincelejo has the highest informality rate among the 23 cities and metropolitan areas studied, at 65.2%, followed by Riohacha and Cucuta, both at 61.9%. They are followed by Monteria at 61.4%; Valledupar at 61.3%; Florencia at 59.2%; Quibdó at 56.8%; and Santa Marta at 56.5%. At the other end are Bogotá at 32.6%; Manizales at 35.6%; and Tunja at 35.7%. Medellin stands at 38.7%, while Pereira records 40.4%. The gap between Sincelejo and Bogota exceeds 32 percentage points. This shows that speaking about a single Colombian labor reality can be misleading, as where a person lives strongly affects the likelihood of obtaining formal employment.
The other major divide appears when employment is analyzed by company size. Among people working in microbusinesses with up to 10 employees, 84.7% are informal. In small businesses with 11 to 50 workers, that share drops to 20.6%; in medium-sized companies it falls to 4.9%, and in large companies to 2.4%. The figure for microbusinesses is one of the most important in the entire report. Colombia will struggle to reduce informality quickly without addressing the conditions under which its smallest productive units operate. The problem is not simply about convincing a person to contribute to a pension or register a business. It also involves productivity, access to credit, taxation, hiring costs, training, technology, and the ability to grow.
The US$643 minimum page package enters the debate
The new figures come at an unusual moment for Colombia’s labor market. For 2026, Gustavo Petro’s government temporarily set the monthly legal minimum wage at approximately US$563 (COP 1,750,905), a 23% increase from about US$458 (COP 1,423,500) in 2025. The transportation allowance was set at approximately US$80 (COP 249,095), meaning that a worker earning the minimum wage and eligible for the benefit receives a total of roughly US$643 per month (COP 2 million), based on the September 15, 2026, exchange rate.
The government defended the increase as part of an effort to move toward a “living wage,” arguing that it would progressively narrow the gap between minimum income and the cost of meeting households’ basic needs. Petro has also publicly linked the policy to labor reform and to the broader goal of improving the income of salaried workers. The economic debate, however, is far from settled. The tension lies between two legitimate goals: substantially improving the income of people who already hold formal jobs without raising barriers for those still trying to enter that market.
Research by Colombia’s Central Bank, or Banco de la República, has found evidence that a minimum wage that is high relative to productivity levels can increase the likelihood of informality, especially among people with lower levels of education, younger workers, and workers in lower-productivity cities. A study released in 2026 estimated that a one-percentage-point increase in the relationship analyzed between the minimum wage and reference wages raises the probability of being in informal employment by between 0.16 and 0.21 percentage points. The central bank itself cautions that the effects are heterogeneous and should not be interpreted as being identical for all workers or regions.
The business sector has taken a more critical view. Fenalco, for example, has warned that higher labor costs, combined with changes resulting from labor reform and the reduction of the workweek, could affect hiring decisions, particularly among companies operating with narrow financial margins. The business association has said that part of the private sector is already reviewing staffing levels and recruitment plans in response to those higher costs.
Those warnings, however, must be clearly distinguished from official statistics. Business surveys reflect the perceptions or reported decisions of the companies consulted, but they do not replace DANE’s national labor market measurements. Official data so far show a more complex picture, one where unemployment has fallen, employment has increased, and national informality has declined slightly at the same time that the higher minimum wage and new labor rules have taken effect.
For now, this prevents any broad deterioration in employment from being attributed directly to the wage increase. The effects of a change of this magnitude need to be observed over a longer period to determine more precisely how they affect hiring, productivity, formalization, and business survival.
Colombia’s challenge is turning employment into protection and productivity
Labor informality in Colombia has declined, but the pace remains insufficient given the scale of the problem. Moving from 55.0% to 54.6% in one year is a positive sign; keeping more than half of the employed population in informal work remains a major economic and social vulnerability. The challenge will be to avoid creating a false choice between stronger labor rights and job creation. Protecting wages, overtime pay, pensions, and decent working conditions is essential, but public policy must also make it economically feasible for a microbusiness to formalize its workers and for a low-income independent worker to enter the system without facing costs that are impossible to absorb.
That challenge requires looking beyond large companies and major cities. If 84.7% of people working in microbusinesses are informal and 83.2% of employed people in rural areas are in the same situation, formalization policies will have to focus precisely on the places where operating within labor and business rules is currently most difficult. Uniform solutions will also be insufficient. A country where Bogotá records an informality rate of 32.6%, Sincelejo reaches 65.2%, and rural areas exceed 83% needs different strategies depending on geography, productivity, and business structure. Incentives for formalization, access to credit, administrative simplification, workforce training, expansion of productive businesses, and more accessible social protection must move forward at the same time.
Reducing informality is also not merely a labor market objective. It is a necessary condition for expanding pension coverage, strengthening the financing of social security, improving productivity, and reducing the vulnerability of millions of households. When a large share of workers remains outside contributory systems, the country is not only dealing with a job-quality problem: it also loses the ability to finance social protection sustainably and to convert economic growth into more stable well-being.
DANE’s figures ultimately reveal an apparent paradox that sums up Colombia’s labor market in 2026. The country has lower unemployment, more people working, and an informality rate that continues to decline slowly. But 54.6% is still far too high to consider the problem solved. Colombia has already shown that it can create jobs. But its next challenge is much harder and depends on ensuring that finding work also means gaining greater economic security, social protection, and opportunities for advancement, and that an economy with more people employed also becomes more productive and less unequal.
Note: All statistical figures on labor informality cited in this article come directly from DANE’s Technical Bulletin on Informal Employment for the May-July 2026 moving quarter, officially published on Sept. 11, 2026, to ensure accuracy and traceability of the information.