Labor Market in Arauca: Flows under Conditions of Unemployment Hysteresis and Production Heterogeneity

Abstract

Objectives: This study was conducted with the aim of analyzing the dynamics of job creation and job destruction within the municipality of Arauca, Colombia, over the period from March to May 2025. Specifically, the focus is on identifying and understanding the mechanisms that explain the persistent high unemployment rates in the region, which are theorized to stem from structural causes and are reinforced by hysteresis effects in the labor market. Hysteresis, in this context, refers to the phenomenon in which unemployment remains elevated long after the original economic shock has subsided, due to entrenched institutional, structural, and behavioral barriers. In particular, the research aims to identify key obstacles faced by employers and job seekers, assess the degree to which local institutions and public policies are addressing these challenges, and explore the informal strategies adopted by the population to survive in a labor market characterized by exclusion and informality. Additionally, a secondary objective is to contribute empirical evidence to policy discussions on labor market interventions in peripheral regions of Colombia.

Materials and methods: A comprehensive mixed-methods approach was employed in this research. The methodology was designed to capture both numerical trends in employment and the lived experiences of economic agents in Arauca. Regarding the quantitative aspect, the study drew on a longitudinal panel of 97 firms that had renewed their commercial registration with the Arauca Chamber of Commerce in 2024 and 2025. These firms were categorized according to economic sector—primary (agriculture, mining), secondary (industry, construction), and tertiary (services)—and by size, primarily micro and small enterprises. Monthly structured surveys were administered to collect data on workforce size, hiring, dismissals, expectations for the near future, and perceived economic challenges. The statistical analysis focused on net employment flows and sectoral distribution. Concerning the qualitative component, it comprised nine semi-structured interviews with a purposive sample of stakeholders, including five unemployed persons (some with long-term unemployment trajectories), three small business owners from key sectors, and one government official from the Departmental Secretariat of Economic Development. The interviews explored themes such as institutional trust, experiences with hiring processes, barriers to formal employment, coping strategies, and opinions on current public policies. Data from the interviews were transcribed, coded using open coding techniques, and analyzed through the ATLAS.TI© software to identify recurring patterns, discourses, and perceptions.

Results: The data collected revealed a stagnant labor market in Arauca, with a net employment variation near zero across the three months of observation. Although a minority of businesses reported hiring one or two workers, others reported layoffs of similar magnitude, resulting in a neutral net effect. This pattern held true especially in the tertiary sector, which dominated the local economy. These businesses were mostly characterized by small scale, short planning horizons, limited access to capital, and high exposure to external shocks. In this regard, descriptive statistics showed that the average number of workers per firm was four, with the most frequent value being one. More than 95% of firms operated in services such as retail, hospitality, informal transport, and food sales. The secondary and primary sectors were largely underrepresented in the sample and in the formal business registry itself, reflecting the structure of the local economy. Consequently, these characteristics point to a fragile economic base with limited capacity to create stable and quality jobs. Moreover, most firms indicated they had no plans to hire in the short term and expressed uncertainty about their economic prospects. Furthermore, qualitative interviews revealed that jobseekers, particularly those without strong social networks or political connections, perceived access to employment as being mediated by favoritism and clientelist practices. Many reported submitting applications without ever receiving replies or being told that positions were already assigned. Long-term unemployed individuals described feelings of frustration, resignation, and exclusion. Several resorted to selling homemade goods, food, or offering informal services such as cleaning or transport. Simultaneously, business owners cited a lack of security, weak infrastructure, and administrative instability as major deterrents to investment and hiring. Finally, the interviewed official acknowledged the limitations of employment programs, which were described as sporadic and poorly funded. Interviewees across all groups emphasized the absence of a coherent long-term economic development plan.

Conclusions: The research findings support the hypothesis that unemployment in Arauca is not only cyclical but deeply structural. Hysteresis is evident in the way unemployment persists beyond specific shocks, such as the COVID-19 pandemic, and becomes embedded in the functioning of the local economy. The predominance of informal, low-productivity activities and the limited presence of dynamic economic sectors contribute to labor market exclusion. The segmentation between a small formal sector—largely dependent on public administration and extractive activities—and a large informal sector perpetuates inequality and restricts social mobility. Therefore, without policy interventions, this condition is likely to remain. To break the cycle, public policy must adopt a dual approach. On the one hand, in the short term, the region needs targeted employment programs, including public works initiatives, subsidies for hiring vulnerable populations, and improved job-matching systems. On the other hand, in the long term, structural transformation is essential. This involves promoting productive diversification, investing in vocational education and training programs aligned with local economic opportunities, and strengthening institutions to build trust and ensure continuity in development policies. In particular, support for micro and small enterprises is crucial. Financial inclusion, access to technology, business formalization, and integration into value chains should be at the center of the policy agenda. Addressing barriers to female and youth employment, such as discrimination and care burdens, also requires attention. Furthermore, improving public security and reducing administrative turnover would help restore investor confidence and create conditions for sustainable growth. Ultimately, this study offers a comprehensive diagnosis of Arauca's labor market challenges and lays the groundwork for evidence-based policymaking. While the road to reversing unemployment hysteresis is long, coordinated and sustained interventions can open pathways for inclusive and resilient labor markets in regions historically left behind. Moreover, an additional consideration concerns the role of cross-border dynamics in shaping Arauca’s labor market. Given its geographical location on the Venezuelan border, Arauca is particularly exposed to migration flows, informal trade, and fluctuating security conditions. These factors must be integrated into labor policy planning. The presence of migrant workers introduces both opportunities and challenges.