Colombia is a Latin American success story, but must pursue new reforms to achieve more inclusive growth
Colombia’s economy is resilient and appears well equipped to navigate a challenging external environment dominated by protectionism and uncertainty, but it must pursue new reforms to make growth stronger and more inclusive, according to a new report from the OECD.
The latest OECD Economic Survey of Colombia discusses how boosting productivity through new structural reforms can help the country create new high-quality jobs, draw more advantages from greater integration with the global economy and continue the convergence process with OECD countries. The Survey projects the Colombian economy will remain resilient, with growth of around 3.4% this year and 3.5% next, but cautions that trade tensions, geopolitical uncertainties and weaker advanced economies are important downside risks.
The Survey, presented in Bogota by OECD Secretary-General Angel Gurría, alongside Colombian President Iván Duque, Colombian Vice-President Marta Lucía Ramírez and Minister of Finance and Public Credit Alberto Carrasquilla, discusses the need to boost productivity, improve social policy and make exports an engine for both growth and the creation of high-quality jobs.
“Colombia has made tremendous economic and social progress, driven by impressive reforms that have created a solid macroeconomic framework and set the basis for the future,” Mr Gurría said. “The challenge facing policymakers today is to put the economy on a path to stronger and more inclusive growth, with the benefits shared among more Colombians. Courageous structural reforms will help Colombia converge with OECD living standards, reach its potential and achieve a more inclusive economy.” (Read the speech)
The Survey points out that further advances in living standards will hinge on reforms to reinvigorate productivity growth, which has stagnated in the last decade and is low by Latin American standards. Reforms should seek to reduce regulatory burdens, increase competition, quicken digital transformation and boost innovation, notably through greater support for R&D.
To help Colombia meet its untapped export potential, the government should seek to reduce tariffs and the scope of non-tariff barriers to trade, continue improvements to infrastructure, customs and logistics services and allow greater competition in key sectors, such as transport, which would improve competitiveness. Further support for entrepreneurship and greater access to finance will also be fundamental.
Colombia has seen some success in reducing its high levels of labour market informality, but more must be done to ensure that government policies promote both formal employment and inclusiveness. Continuing the reduction of non-wage labour costs, which are among the highest in Latin America, will be key. Decreasing firms’ registration costs and simplifying the registration of workers to social security would facilitate formalisation of firms and jobs. Reviewing the minimum wage could help achieve a more job-friendly wage level.
Improving the quality and relevance of education and training will also be critical for Colombian efforts to prepare workers for high-quality formal employment. Colombia needs to prioritise early-childhood and basic education, particularly in rural areas, as well as the provision of quality teaching staff. More can be done to ensure that the vocational training system provides adequate skills enabling workers to enter formal employment and break out of poverty, the Survey said.
To ensure sound public finances while creating space for dealing with potential future shocks, Colombian macroeconomic policy will need to strike an appropriate balance, the Survey said. This should include gradual reduction in the budget deficit, to 1% of GDP by 2022, in line with the fiscal rule, coupled with targeted social policies aimed at reducing inequality and poverty.
Further tax reforms should seek to improve redistribution, raise revenues and improve the tax mix. Broadening the bases of personal and value-added taxes, reducing the corporate tax rate and eliminating its numerous tax exemptions should be considered. Further revenue could come from environmental taxes and from strengthening tax administrations to reduce tax evasion.
Reforms to the pension system will be necessary to reduce old-age poverty and ensure sustainability.
WEF Report Highlights Retirement Trends as Life Expectancy Increases
Life expectancy increased from an average of 46 to 73 years between 1950 and 2019 and the United Nations forecasts further increases, estimating that global average life expectancy will reach about 81 years by 2100. Longer lifespans are causing individuals, governments and business leaders to rethink their approach to work and retirement.
Living Longer, Better: Understanding Longevity Literacy, a new World Economic Forum report, in collaboration with Mercer, a business of Marsh McLennan, explores how lengthening lifespans are reshaping how individuals view their working lives and retirement. The report offers recommendations for government and employers to ensure they are adequately supporting people in multiple stages of work and retirement.
The report highlights purpose and quality of life in addition to financial health and resilience – themes that are traditionally associated with retirement planning. It offers options that individuals can consider to ensure they are approaching work, learning and retirement in ways that best meet their needs.
“When it comes to longevity and living longer, healthier lives, everyone has a role on this critical topic,” said Haleh Nazeri, Longevity Lead, World Economic Forum. “How will business support an older workforce and one with growing caregiving needs, what will policymakers do to help all citizens reach retirement equity, and finally, what can individuals do at every life stage to ensure they are able to stay financially resilient in a longer life.”
“Employers are thinking more about the current age distributions within the areas of talent needed to operate their organizations and how to influence the trajectory of these distributions,” said Rich Nuzum, Executive Director, Investments & Global Chief Investment Strategist, Mercer. “To leverage longevity and fight the war for talent effectively, moving from individual roles to team-based roles can help employers take full advantage of the diverse strengths of teams that comprise a combination of older and younger workers.”
Views on Retirement
A new survey, Pulse Poll, of almost 400 professionals indicates that women and men view retirement differently. Women, for example, are 55% more likely to say they don’t know if they have saved enough for retirement.
The poll also reveals differences in how younger and older populations view their retirement futures. Both women and those under 40 are more willing to reskill but worry about associated costs. Both groups are also more likely to feel isolated.
Further results from the Pulse Poll can be found below and in the report:
- Health is a top concern with two thirds of respondents indicating they expect to have caring responsibilities
- Days of “Bank of Mum and Dad” may be reversing; many younger people are likely to have to financially support older family members
- Pulse Poll respondents over 40 target lower income replacement levels in retirement
- People are generally unaware of how to achieve their target levels of retirement income
- More men looking forward to retirement, while more women need to understand their financial situation
- Women are 55% more likely to say they don’t know if they have saved enough
- Younger people are eight times more likely to use social media for financial advice
- 44% of under-40s want to retire by 60
- Women and younger people are more willing to reskill but are also worried about associated costs
The respondent profiles to the Pulse Poll were homogeneous and predominantly included those who had undertaken higher education, were in more senior positions, were likely to be in employment at major global organizations and with a high level of individual agency and financial literacy.
While there are some sample limitations, the survey suggests how the findings can help start a conversation about the challenges faced and can contribute to the development of solutions for the population this group of respondents represents.
Recommendations for Governments and Employers
As people are living longer lives, business and government need to restructure their approach to later life planning. Failing to adopt a multistakeholder approach towards longevity will inevitably result in a significant portion of people retiring into poverty.
Recommendations are cover three key areas of work and retirement including quality of life, purpose and financial resilience.
- Facilitate upskilling of older workers and clamp down on ageism
- Provide incentives for employers to offer more robust leave policies for caregiving needs
- Explore the wider use of default auto-enrollment and default investment strategies to increase and maximize savings
- Establish safety nets such as minimum pension levels provided by government
- Enact enabling legislation to make all jobs flexible for longer-life working if desired and to accommodate all life-stage needs
- Offer digital skills training and equipment to ensure equitable access to opportunities for all
- Implement programmes offering support such as carers’ leave, information and advice for those who have caregiver responsibilities
- Understand what impact the company’s retirement plan design has on the trajectory of retirement-readiness and labour flow – check if people can actually afford to retire
- Provide flex-work programmes for caregivers, such as job-shares; allow part-time workers to contribute to defined contribution plans; provide training programmes for workforce re-entry, similar to those for early-career employees
- Implement and review financial wellness programmes to:
- Cover specific life-stage needs that account for gender, cultural and ethnicity differences
- Consider personalized models to show the impact of different working arrangements and retirement ages on pay and pension
- Cater to low-income earners who are likely to need the most support saving and planning for retirement
Individuals can also reimagine what their longer lives might look like as the three-stage life of school, work and retirement makes way for a multi-stage life that could include lifelong learning, career breaks and new occupations in later life. This includes pursuing upskilling and reskilling opportunities, as well as prioritizing retirement and pension planning if possible.
Increasing longevity globally will require new innovations and solutions to address how people can stay financially resilient in a retirement that may be 20 years longer than their grandparents. With supportive actions from government and employers, individuals will have a chance to try new approaches to longer lives and reassess how they want to study, live, work, save and retire in ways that are different from what has been done in the past century.
Up to a Quarter of Jobs Expected to Change in Next Five Years
The Future of Jobs Report 2023 suggests that almost a quarter of jobs (23%) are expected to change in the next five years through growth of 10.2% and decline of 12.3%. According to the estimates of the 803 companies surveyed for the report, employers anticipate 69 million new jobs to be created and 83 million eliminated among the 673 million jobs corresponding to the dataset, a net decrease of 14 million jobs, or 2% of current employment.
Macrotrends, including the green transition, ESG standards and localization of supply chains, are the leading drivers of job growth, with economic challenges including high inflation, slower economic growth and supply shortages posing the greatest threat. Advancing technology adoption and increasing digitization will cause significant labour market churn, with an overall net positive in job creation.
“For people around the world, the past three years have been filled with upheaval and uncertainty for their lives and livelihoods, with COVID-19, geopolitical and economic shifts, and the rapid advancement of AI and other technologies now risks adding more uncertainty,” said Saadia Zahidi, Managing Director, World Economic Forum. “The good news is that there is a clear way forward to ensure resilience. Governments and businesses must invest in supporting the shift to the jobs of the future through the education, reskilling and social support structures that can ensure individuals are at the heart of the future of work.”
From the “robot revolution” to algorithm Armageddon?
While technology continues to pose both challenges and opportunities to labour markets, employers expect most technologies to contribute positively to job creation.
The fastest growing roles are being driven by technology and digitalization.Big data ranks at the top among technologies seen to create jobs, with 65% of survey respondents expecting job growth in related roles. The employment of data analysts and scientists, big data specialists, AI machine learning specialists and cybersecurity professionals is expected to grow on average by 30% by 2027. Training workers to utilize AI and big data will be prioritized by 42% of surveyed companies in the next five years, ranking behind analytical thinking (48%) and creative thinking (43%) in importance. Digital commerce will lead to the largest absolute gains in jobs: approximately 2 million new digitally enabled roles are expected, such as e-commerce specialists, digital transformation specialists, and digital marketing and strategy specialists.
At the same time, the fastest declining roles are also being driven by technology and digitalization, with clerical or secretarial roles including bank tellers, cashiers and data entry clerks expected to decline fastest.
The Future of Jobs Report 2023 suggests that tasks are seen as no more automated now than they were three years ago when the report was last published. About a third of tasks (34%) are currently automated, just 1% above the 2020 figure. Surveyed companies also revised down their expectations for further automation, to 42% of tasks by 2027, compared to 2020 estimates of 47% of tasks by 2025.
But while expectations of the displacement of physical and manual work by machines has decreased, reasoning, communicating and coordinating – all traits with a comparative advantage for humans – are expected to be more automatable in the future. Artificial intelligence, a key driver of potential algorithmic displacement, is expected to be adopted by nearly 75% of surveyed companies and is expected to lead to high churn – with 50% of organizations expecting it to create job growth and 25% expecting it to create job losses.
Rise of green, education and agriculture jobs
Investment in the green transition and climate-change mitigation, as well as increasing consumer awareness of sustainability issues are driving industry transformation and opening new opportunities in the labour market. The strongest net job-creation effects are expected to be driven by investments that facilitate the green transition of businesses, with more than half of respondents expecting it. As countries seek more renewable energy sources, roles including renewable energy engineers and solar energy installation and systems engineers will be in high demand.
Investment will also drive growth in more generalist sustainability roles, such as sustainability specialists and environmental protection professionals, which are expected to grow by 33% and 34% respectively, translating to growth of approximately 1 million jobs.
However, the largest absolute gains in jobs will come from education and agriculture. The report finds that jobs in the education industry are expected to grow by about 10%, leading to 3 million additional jobs for vocational education teachers and university and higher education teachers. Jobs for agricultural professionals, especially agricultural equipment operators, graders and sorters, are expected to see a 15%-30% increase, leading to an additional 4 million jobs.
Indeed, a Recruit Holdings company, finds that while demand for social jobs such as those in health and education have grown faster during the pandemic, these job openings are harder to fill than others.
“At Recruit, we believe we must continue to embrace AI and technology to help job seekers and employers as we navigate near-term macroeconomic headwinds and long-term labour market challenges,” said Hisayuki “Deko” Idekoba, President, CEO and Representative Director of the Board of Recruit Holdings. “We expect a labour shortage to remain for many years ahead, across many sectors and particularly as the population ages. Therefore, it is essential that we identify new ways to simplify the hiring process to support a thriving economy and society where everyone can prosper together.”
Increasing urgency for the reskilling revolution
Companies report that skills gaps and an inability to attract talent are the key barriers to transformation, showing a clear need for training and reskilling across industries. Six in 10 workers will require training before 2027 but only half of employees are seen to have access to adequate training opportunities today. At the same time, the report estimates that, on average, 44% of an individual worker’s skills will need to be updated.
The gap between workers’ skills and future business needs puts the onus on companies and governments to enable learning and reskilling opportunities. Government funding for skills training would help connect talent to employment, according to 45% of businesses surveyed.
For example, while there is continued growth in green jobs in the past four years, as indicated by additional research conducted by LinkedIn for this year’s report, reskilling and upskilling towards green skills is not keeping pace.
“The sustained growth of green jobs is really great news, particularly for job seekers who are facing upheaval in the labour market,” said Sue Duke, Head of Global Public Policy, LinkedIn. “But LinkedIn’s data is clear that while there’s strong demand for talent with green skills, people are not developing green skills at anywhere near a fast enough rate to meet climate targets. There is an opportunity for everyone to help turn this around. Governments must champion the green skills agenda and businesses can and must do more to equip their employees with the skills needed to deliver genuine environmental change.”
In response to the cost-of-living crisis, 36% of companies recognize that offering higher wages could help them attract talent. Yet, companies are planning to mix both investment and displacement to make their workforces more productive and cost-effective. Four in five surveyed companies plan to invest in learning and training on the job as well as automating processes in the next five years. Two thirds of companies expect to see a return on investment on skills training within a year of the investment, whether in the form of enhanced cross-role mobility, increased worker satisfaction or improved worker productivity.
Strong cognitive skills are increasingly valued by employers, reflecting the growing importance of complex problem-solving in the workplace. The most important skills for workers in 2023 are seen to be analytical thinking and creative thinking, and this is expected to remain so in the next five years. Technological literacy, and AI and big data specifically, will become more important and company’s skills strategies will focus on this in the next five years.
Faster reskilling is necessary – and possible. “Our research found that individuals without degrees can acquire critical skills in a comparable timeframe to those with degrees, highlighting the potential for innovative approaches such as industry micro-credentials and skills-based hiring to tackle skills gaps and talent shortages,” said Jeff Maggioncalda, CEO, Coursera. “However, it will require collective action from public and private sectors to provide the affordable, flexible reskilling pathways at scale that displaced workers need to transition into jobs of the future.”
“The latest findings in the Future of Jobs Report renew calls for action from all labour market stakeholders,” said Sander van ‘t Noordende, CEO, Randstad. “Acceleration in digitalization, AI and automation are creating tremendous opportunities for the global workforce, but employers, governments and other organizations need to be ready for the disruptions ahead. By collectively offering greater skilling resources, more efficiently connecting talent to jobs and advocating for a well-regulated labour market, we can protect and prepare workers for a more specialized and equitable future of work.”
Global Economy’s “Speed Limit” Set to Fall to Three-Decade Low
The global economy’s “speed limit”—the maximum long-term rate at which it can grow without sparking inflation—is set to slump to a three-decade low by 2030. An ambitious policy push is needed to boost productivity and the labor supply, ramp up investment and trade, and harness the potential of the services sector, a new World Bank report shows.
The report, Falling Long-Term Growth Prospects: Trends, Expectations, and Policies, offers the first comprehensive assessment of long-term potential output growth rates in the aftermath of the COVID-19 pandemic and the Russian invasion of Ukraine. These rates can be thought of as the global economy’s “speed limit.”
The report documents a worrisome trend: nearly all the economic forces that powered progress and prosperity over the last three decades are fading. As a result, between 2022 and 2030 average global potential GDP growth is expected to decline by roughly a third from the rate that prevailed in the first decade of this century—to 2.2% a year. For developing economies, the decline will be equally steep: from 6% a year between 2000 and 2010 to 4% a year over the remainder of this decade. These declines would be much steeper in the event of a global financial crisis or a recession.
“A lost decade could be in the making for the global economy,” said Indermit Gill, the World Bank’s Chief Economist and Senior Vice President for Development Economics. “The ongoing decline in potential growth has serious implications for the world’s ability to tackle the expanding array of challenges unique to our times—stubborn poverty, diverging incomes, and climate change. But this decline is reversible. The global economy’s speed limit can be raised—through policies that incentivize work, increase productivity, and accelerate investment.”
The analysis shows that potential GDP growth can be boosted by as much as 0.7 percentage points—to an annual average rate of 2.9%—if countries adopt sustainable, growth-oriented policies. That would convert an expected slowdown into an acceleration of global potential GDP growth.
“We owe it to future generations to formulate policies that can deliver robust, sustainable, and inclusive growth,” said Ayhan Kose, a lead author of the report and Director of the World Bank’s Prospects Group.“A bold and collective policy push must be made now to rejuvenate growth. At the national level, each developing economy will need to repeat its best 10-year record across a range of policies. At the international level, the policy response requires stronger global cooperation and a reenergized push to mobilize private capital.”
The report lays out an extensive menu of achievable policy options, breaking new ground in several areas. It introduces the world’s first comprehensive public database of multiple measures of potential GDP growth—covering 173 economies from 1981 through 2021. It is also the first to assess how a range of short-term economic disruptions—such as recessions and systemic banking crises—reduce potential growth over the medium term.
“Recessions tend to lower potential growth,” said Franziska Ohnsorge, a lead author of the report and Manager of the World Bank’s Prospects Group. “Systemic banking crises do greater immediate harm than recessions, but their impact tends to ease over time.”
The report highlights specific policy actions at the national level that can make an important difference in promoting long-term growth prospects:
Align monetary, fiscal, and financial frameworks: Robust macroeconomic and financial policy frameworks can moderate the ups and downs of business cycles. Policymakers should prioritize taming inflation, ensuring financial-sector stability, reducing debt, and restoring fiscal prudence. These policies can help countries attract investment by instilling investor confidence in national institutions and policymaking.
Ramp up investment: In areas such as transportation and energy, climate-smart agriculture and manufacturing, and land and water systems, sound investments aligned with key climate goals could enhance potential growth by up to 0.3 percentage point per year as well as strengthen resilience to natural disasters in the future.
Cut trade costs: Trade costs—mostly associated with shipping, logistics, and regulations—effectively double the cost of internationally traded goods today. Countries with the highest shipping and logistics costs could cut their trade costs in half by adopting the trade-facilitation and other practices of countries with the lowest shipping and logistics costs. Trade costs, moreover, can be reduced in climate-friendly ways—by removing the current bias toward carbon-intensive goods inherent in many countries’ tariff schedules and by eliminating restrictions on access to environmentally friendly goods and services.
Capitalize on services: The services sector could become the new engine of economic growth. Exports of digitally delivered professional services related to information and communications technology climbed to more than 50% of total services exports in 2021, up from 40%in 2019. The shift could generate important productivity gains if it results in better delivery of services.
Increase labor force participation: About half of the expected slowdown in potential GDP growth through 2030 will be attributable to changing demographics—including a shrinking working-age population and declining labor force participation as societies age. Boosting overall labor force participation rates by the best ten-year increase on record could increase global potential growth rates by as much as 0.2 percentage point a year by 2030. In some regions—such as South Asia and the Middle East and North Africa—increasing female labor force participation rates to the average for all emerging market and developing economies could accelerate potential GDP growth by as much as 1.2 percentage points a year between 2022 and 2030.
The report also underscores the need to strengthen global cooperation. International economic integration has helped to drive global prosperity for more than two decades since 1990, but it has faltered. Restoring it is essential to catalyze trade, accelerate climate action, and mobilize the investments needed to achieve the Sustainable Development Goals.
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