Bancolombia Analysts Warn Colombia’s Low Unemployment Masks Deteriorating Job Quality

A closer read of the labor data reveals fragile, public-led job gains

Colombia’s unemployment rate has held in single digits on a rolling-quarter basis since March 2025, but a closer look at the data shows the improvement rests on weaker foundations than the headline figure implies, according to the latest Radar Bancolombia weekly report, published June 16 by Grupo Cibest, the research arm of Bancolombia (NYSE: CIB, BVC: BCOLOMBIA).

The report’s authors argue that the jobs Colombia is adding are increasingly vulnerable, more dependent on public spending, and of lower quality — limitations the unemployment rate alone does not capture.

The inactivity behind the falling jobless rate

The unemployment rate counts only people actively looking for work, so those who stop searching — the inactive — drop out of the measure even though they still weigh on the market.

“The employment being generated is increasingly vulnerable, more dependent on public spending, and of lower quality.” — Radar Bancolombia, June 16, 2026, Grupo Cibest

Using the metaphor of an iceberg, Grupo Cibest describes unemployment, near 8.7% on a moving-year average to April 2026, as the visible portion. Meanwhile, inactivity, sits below the surface, exceeding 35% of the working-age population according to the report. Between January 2020 and February 2026, the ratio of inactive to unemployed people rose from 4 to 5 for every unemployed person, suggesting the drop in unemployment reflects not only more opportunity but also people leaving the labor force.

Formal jobs, fragile foundations

Formal employment has been rising, but the report flags long-term weaknesses. The Bancolombia Formality Index, part of a new set of employment-vulnerability indicators, closed March 2026 at 72.7 points, above its 2022–2025 average and well above the 50.5 points recorded in March 2025.

Formality and coverage of health and pension contributors both increased through 2026, which appears positive at first glance. Much of that covered employment, however, does not stem from a genuine private-sector recovery. The report’s hypothesis is that the minimum-wage increase at the start of the year raised the cost of formalizing jobs, discouraging formal hiring at the moment the economy most needed it.

Quality is the bigger worry

The Bancolombia Employment Quality Index — which weighs formal workers’ income relative to the minimum wage, the mix of dependent and independent workers, and the share of non-vulnerable formal jobs — stood at 20 points in March 2026, below the prior year and marking a change in trend from the preceding three years. The deterioration reflects a lower income relative to the minimum wage in 2026 compared with the 2022–2025 average, a narrowing gap between dependent and independent workers that points to more independent and vulnerable formal employment, and a rising share of independents within total formal workers.

The report concludes that Colombia needs sustained formalization that does not rely on public spending as the main engine of job creation, nor on minimum-wage adjustments as the main tool of labor policy. The underlying figures draw on the National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística, DANE) and its Gran Encuesta Integrada de Hogares (Great Integrated Household Survey, GEIH), with calculations by Grupo Cibest.

Other highlights of the Report

On the domestic economy, the report noted that the Economic Policy Uncertainty Index from the think tank Fedesarrollo eased in May from a high April reading, and estimated that Colombia’s economy grew at a solid pace in April, with commerce expanding at double digits, manufacturing recovering gradually, and consumer confidence likely remaining in double digits in May.

In local markets, the fixed-rate TES curve — Colombia’s peso-denominated government bonds — gained 34 basis points on average the prior week, and the report cited a projected fiscal deficit of 5.3% of GDP under the 2026 Marco Fiscal de Mediano Plazo (Medium-Term Fiscal Framework). Pension fund managers and commercial banks led May purchases of class B TES in the secondary market. The Colombian peso appreciated in line with global and regional trends, while crude prices fell on the prospect of a US–Iran agreement and OPEC approved a fourth consecutive output increase for July.

Stock photo by Kevin Seibel via Pixabay.