Labor market trajectories and earnings dynamics in Colombia

This paper analyzes formal labor earnings dynamics in Colombia using administrative Social Security records for the universe of formal workers from 2009 to 2024. We present stylized facts on formal earnings dispersion, growth, and volatility following the Global Repository of Income Dynamics framework. We find a modest decline in formal earnings concentration and stable overall dispersion, patterns comparable to those observed in the United States. We show how individuals’ histories of attachment to the formal sector shape the levels of earnings inequality and volatility. We identify five distinct groups of individuals based on their formal sector attachment trajectories that explain most of the variation in formal participation. Earnings dispersion is substantially higher among groups with low formal attachment, while those with high attachment display substantially lower, and more stable, earnings dispersion and are more likely to work at larger firms. Our findings highlight the central role of long-run formal attachment in shaping earnings dynamics.