The design of the Colombian pension system exacerbates income inequality and poverty after retirement age. High informality rates (over 60% of total employment, according to OECD) imply that many workers in Colombia have a low probability of qualifying to get a contributory pension. Despite the targeted support provided to the vulnerable population through pension assistance programs, this support  tends to be low compared to other countries in Latin America and the Caribbean.

The relationship between informality and inequality after retirement plays a central role in the discussion of policies affecting the labour market. One dimension that has not been explored in the public policy debate is how policies aimed to mitigate climate change (and more specifically the creation of green jobs) can affect the distribution of workers between the formal and informal sectors, and how it can have an impact income inequality after retirement.

This project is part of the Extension of the EU-AFD Research Facility on Inequalities. Coordinated by AFD and financed by the European Commission, the Extension of the Facility will contribute to the development of public policies aimed at reducing inequalities in four countries: South Africa, Mexico, Colombia and Indonesia over the period 2021-2025.

This project seeks to contribute to the public policy debate by analysing the effects that scenarios of a green economic transformation may have on income inequality after retirement, via the reallocation of workers between the formal and informal labour markets. 

The project will aim to answer following questions, in the Colombian context:

• What are the environmental properties of jobs?
• How can economic transformation towards a more sustainable economy change the composition and transitions between the formal and informal sector?
• What is the impact on inequality and fiscal viability of implementing those policy scenarios?

In addition, the project will evaluate prospective scenarios during the discussion of the pension reform in the  Colombian Congress and will develop a simulation model for the use of the Ministry of Finance and Public  Credit.

The project will be implemented in three stages:

• The research team will first characterize the environmental properties of jobs in Colombia.
• In the second stage, the team will calibrate the transition matrices between employment states and wages to introduce to the microsimulation model. In this stage, the team will propose the economic transition scenarios to simulate.
• In the final stage of the project, the team will prepare a final report with the simulation results and policy discussion.

You will find below the different research papers related to this project:

• Quantifying Green Job Potential in Colombia: A Task-Based Approach (November 2024)

Find out more about the work of the Extension of the Research Facility on Inequalities in Colombia

Contact: 

• Anda David, AFD Research Officer

Contacto: 

• Anda David, responsable de investigación, AFD

South Africa’s Economic Reconstruction and Recovery Plan was launched in October 2020 by the Presidency in response to the economic impacts of the Covid-19 pandemic. Besides the Presidential Employment Stimulus program, it included emergency social protection measures, among which the introduction of a special Covid-19 Social Relief of Distress grant (SRD), providing ZAR350 per month for unemployed people not covered by any other form of support. The South African government now seeks to develop options for the future of SRD grant.

Find out more about the Extension in South Africa

The objective of this research project is to produce motivated recommendations on how the SRD should be designed going forward into the longer term, in order to maximize the impact of the grant on employment outcomes and to ensure it effectively reduces poverty, while maintaining its cost to an acceptable level:

1. To maximise the impact of the grant on employment, the project needs to understand how to design and label the grant to encourage its use for job search.
2. To ensure the grant effectively reduces poverty, the project must figure out the most cost-effective way to target and assess the eligibility of recipients. Moreover, poverty reductions can be scaled up by determining measures that could encourage take up among the most disadvantaged. 

Once these goals have been achieved, and in order to inform public decision-making, these findings must be communicated to a number of stakeholders in government and civil society.

This project is part of a wider research program conducted with several South African research centres and in close collaboration with the South African Presidency. Four other research projects analysing the externalities of the Covid-19 stimulus policy are currently being developed as part of the first pillar of the Extension's activities in South Africa.

This research project uses the model generated to conduct the 2014/2015 fiscal incidence assessment and introduces updated data for 2019-2021. It simulates five scenarios around eligibility criteria, targeting mechanisms, value, disbursement model and conditionalities and computes the potential impact on poverty and employment outcomes.

You will find below the research paper related to this project: 

• Proposal for the extension, redesign and repurposing of the SRD for the goal of poverty reduction

• Anda David, AFD Research Officer