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Jorge Alvarez and Carlo Pizzinelli
This paper documents the impact of the COVID-19 pandemic and associated lockdowns on the Colombian labor market using household micro-data. About a quarter of employment was temporarily disrupted at the height of the first pandemic-induced lockdown in 2020. Women, the young, and the less educated were the most affected groups. Since then, a remarkable recovery, led by a rebound in informal employment, has taken place. By adjusting both employment levels and hours faster, the informal sector acted as an important margin of adjustment, particularly in those industries most affected by the first lockdown. The informal sector also appears to have played a role in decreasing the sensitivity of aggregate employment to more recent lockdowns in 2021, as the economy has learned to cope with pandemic restrictions, although the possibility of higher informality rates becoming embedded remains an substantial downside risk for long-term productivity.
Jorge Alvarez and Carlo Pizzinelli

employment losses with both stringency measures and workplace mobility in later lockdown waves. On the other hand, there are lags in the recovery of formal employment and unemployment rates, and increases in informality rates—both overall and within sectors—remain at risk of becoming permanent. Although a discussion of the long-term implications of more highly informal markets are beyond the scope of this paper, the informality-driven recovery presents risks of potential losses in medium-term productivity and average incomes, as highlighted by a wide literature on

Jorge Alvarez and Carlo Pizzinelli

Copyright Page © 2021 International Monetary Fund WP/21/235 IMF Working Paper Western Hemisphere Department COVID-19 and the Informality-driven Recovery: The Case of Colombia’s Labor Market Prepared by Jorge Alvarez and Carlo Pizzinelli Authorized for distribution by Hamid Faruqee September 2021 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate . The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the

International Monetary Fund. Western Hemisphere Dept.

emerging labor market scars and adjust social protection and labor policies commensurately. Also, an impact evaluation of the labor market measures adopted under la Ley Humanitaria would inform labor market reform going forward. References Adams-Prassl Abigail , Teodora Boneva , Marta Golin , Christopher Rauh ( 2020 ), “ The large and unequal impact of COVID-19 on workers ”, Voxeu Alvarez Jorge and Carlo Pizzinelli ( 2021 ), “ COVID-19 and the Informality-driven Recovery: The case of Colombia’s labor market ”, IMF WP

International Monetary Fund. Western Hemisphere Dept.

Research , Cambridge, MA . Alvarez , Jorge , and Carlo Pizzinelli . 2021 . “ COVID-19 and the Informality-Driven Recovery: The Case of Colombia’s Labor Market .” IMF Working Paper 21/235 , International Monetary Fund , Washington, DC . Baker , Scott R. , Nicholas Bloom , and Steven J. Davis . 2016 . “ Measuring Economic Policy Uncertainty .” The Quarterly Journal of Economics 131 ( 4 ): 1593 – 1636 . Bakker , Bas B. , Manuk Ghazanchyan , Alex Ho , and Vibha Nanda . 2020 . “ The Lack of Convergence of Latin