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International Monetary Fund. Western Hemisphere Dept.

The Role of Labor Frictions in Colombia’s Recent Economic Performance 1 Colombia has sustained strong growth and outpaced its regional peers in recent years and recently implemented an important tax reform to foster labor formality. This paper quantifies the role that improvements in labor market distortions have had in Colombia’s recent economic performance; it finds that they have had a significant role in the evolution not only of GDP but also employment and investment . A. Introduction 1. Colombia’s recent economic performance stands out among its

Sergio Clavijo

. Health Care and Fiscal Cost Projections 3. Health Care NPV by Type of Obligation Figures 1. Retirement Age Gap 2. Evolution of Replacement Rates 3. Expected Replacement Rates Under the Private AFP’s System 4. Pension Contributions: Worker/Firm Share 5. Projected Cash Payments to Support Paygo 6. Estimated NPV of Pension Liabilities 7. Structure of the Health Care System 8. Colombia Health Care and Pension Coverage 9. Health Care Spending 10. GDP Per Capita and Labor Formality Correlation 11. Health Care and Fiscal Cost Projections 12. A

Sergio Clavijo

a result of high labor market informality. An over-regulated labor market and high payroll taxes (of about 55 percent on behalf of the firm, including earmarked taxes) would have to be corrected in order to increase labor formality in the future, as will be discussed further. These replacement rates under the paygo system differed markedly with those of the private system instituted under Law 100 of 1993. The average return on portfolios managed through Colombian AFPs during 1995–2007 was close to 10 percent per-year in real terms. This means that a worker

International Monetary Fund. Western Hemisphere Dept.

offers standard social security protection, but is unable to get such a job). 4 10. Labor formality can be measured with relative accuracy in Colombia, but there is no consensus on any one definition . Reliable measurements of informality from the worker’s perspective can be obtained from household survey data going back to the 1990s. The most common conceptual approach is to think of informal employment as workers who do not contribute to social security. Alternative definitions are: workers who do not receive some or all mandated benefits, or workers who have a

Sergio Clavijo
This paper analyzes the economic rationale for adopting parametric pension reforms and reforms broadening the coverage of public health care in Colombia during 1993-2008. Parametric pension reforms have focused on increasing the retirement age and moderating replacement rates. The health system reforms aimed at reaching universal coverage by 2012, while providing a more homogenous level of services. Our results indicate that the Net Present Value of the debt of the social security system in Colombia is roughly 160 percent of GDP for pensions and about 97 percent of GDP for the health system.
International Monetary Fund

financial system , by reducing dollarization, particularly of mortgage loans; improving the regulatory and supervisory framework for public banks, and advancing reforms to deepen domestic capital markets. Advance growth-enhancing reforms , by further opening the economy, increasing labor formality and improving the business environment. Front Matter Page Press Release No. 07/145 FOR IMMEDIATE RELEASE June 27, 2007 International Monetary Fund Washington, D.C. 20431 USA Telephone 202-623-7100 Fax 202-623-6772 www.imf.org

International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper examines the export growth in Colombia. Colombian exports are heavily concentrated in commodities but the large real depreciation since 2015 offers an opportunity to grow nontraditional exports substantially. Colombia’s comparative advantage in noncommodity products was weak in 2013-15, and export diversification was low, partly owing to the commodity price boom. Exports grew moderately in recent years but in line with historical relationships given fundamentals. The export outlook is positive. Given global growth assumptions, the IMF staff’s models predict acceleration in export growth. The historical experience of commodity exporters suffers large real depreciations also paints a positive picture.
International Monetary Fund. Middle East and Central Asia Dept.

the private sector. The government can also consider active labor market policies—in particular vocational training and educational programs for workers—within the envelope of available fiscal resources to facilitate and improve the match of workers to jobs, especially for vulnerable groups. 22. Address the negative effects of informality . To reduce the barriers to business and labor formality, policymakers should improve the regulatory framework for business. Entry regulations should be simplified and compliance costs reduced, while at the same time creating an

Antonio C. David, Frederic Lambert, Mr. Frederik G Toscani, and Mr. Jorge Roldos

adjust to limit changes in unemployment is firms engaging in labor hoarding. Labor productivity may also fluctuate with changes in informality, as productivity tends to be lower in the informal sector. To show the role of labor formality/informality, the above decomposition can be rewritten as follows, where l F is the logarithm of formal employment and f is the logarithm of the ratio of formal to total employment (labor formality) 9 : u − u * ≈ − ( l F − l F * ) + ( f

International Monetary Fund. Western Hemisphere Dept.

been subject to multiple reforms . Among the most recent ones, the 2012 structural tax reform aimed to improve labor formality and tax progressivity while being revenue neutral. It replaced part of payroll taxes with an earmarked corporate income tax (CREE) that would coexist with the traditional corporate income tax (CIT); and introduced a new tier in the personal income tax (PIT) akin to the US’s alternative minimum tax (AMT) denoted in Colombia as IMAN. The 2014 tax reform aimed to replaced lost oil revenue as the commodity supercycle started to wane. Its key