A taxonomy of the informal labor market is extremely important to understand and handle
informality, particularly in a country as Colombia where this phenomenon is large and
heterogeneous. As we will argue in this paper, it is possible to identify four different types
of informality, according to the reasons to be informal: low productivity of the worker
(subsistence informality), barriers to formality (induced informality), choice (voluntary
informality) and both choice and low productivity (mixed informality). The policy
recommendations to handle informality varies according to the target type of informality.
While induced informality might be reduced by the removal of formal employment barriers
or by the implementation of active policies to reduce segregation in society, structural
informality requires other kinds of policies, such as a focus on improving educational
outcomes. Similarly, in the case of voluntary informality, providing economic incentives to
formalize and controlling informality might be more effective, whereas mixed informality is
more related to wrong incentives created by social benefits.