Payroll taxes in Colombia have a negative impact on formal wages and employment. A 10% increase in payroll taxes leads to a 1.4% to 2.3% decrease in formal wages and a 4% to 5% decrease in formal employment. This is because the costs of taxation are not fully passed on to employees, resulting in lower wages and fewer job opportunities, especially for low-skill workers. Policies that reduce social security taxes on low earners could help boost employment for this group.