Trends in Labour Markets and Future
Challenges
The Experience of Sri Lanka
Public Lecture
at
Centre for Banking Studies
Central Bank of Sri Lanka
Rajagiriya
by
C P A Karunatilake
on
19 October 2006
th
1
Trends in Labour Markets and Future Challenges
The Experience of Sri Lanka
Good evening. Governor, Deputy Governors, Assistant Governors, senior officers of the
Central Bank, my colleagues and friends, ladies and gentlemen. First of all, I would like to
express my gratitude to the Centre for Banking Studies of the Central Bank of Sri Lanka
(CBSL) for giving me this opportunity to address this audience and share some of my
observations and views on some of the important areas of concerns in the context of
sustainable development of Sri Lanka. I also must say at the outset that my views do not
necessarily represent the views of the CBSL. As you may already have noticed, the focus of
my lecture today is on our labour market.
My plan is to take you through recent developments in our labour market and highlight some
of the issues and challenges arising from these developments. Persistently high
unemployment, particularly among the educated youth, accompanied by slow growth and
high inflation, both volatile, along with persistently high deficits in both government budget
and the current account of the BOP have been disturbing developments for decades in Sri
Lanka. However, the nature and the magnitude of these problems have changed over time and
are somewhat different compared to the past. Over the years the dimensions of the
macroeconomic problems all over the world have changed dramatically with increasing
globalisation along with unprecedented advancements in information technology and the
increased pace of liberalisation in the free movements of goods, services and financial flows
across national borders. Sri Lanka is not an exception.
At the outset, I would like to make an important clarification with regard to the general
perception on most of the macroeconomic problems we are facing today. There is a general
tendency in our society to relate both economic and non-economic problems to current
developments and policies. Apparently in the same spirit, solutions for most of such problems
are expected to be short- term, if not instantaneous, and free from sacrifices. For example,
most of the young unemployed, particularly the graduates, seem to perceive that the
government has to provide them with better jobs in the public sector, as the government has
invested in them by providing free education till they enter the labour market. On the
contrary, the reality is different. The public sector has limitations to expand and absorb all
aspirants. Similarly, most of the current macroeconomic problems have historical roots with
different time dimensions. Solutions are not instantaneous. They need either medium or longterm plans or a combination of both for sustainable solutions. They also need broad based
participation and sacrifices of all stakeholders. Just emotions that overlook realities could
only aggravate the existing problems, while giving illusionary and temporary relief.
Here, I would like to refer to a statement quoted in a book titled “Conversations with
Prominent Economists” with reference to Historiography of Economics by M. Blaug. It reads
as follows. “Economic knowledge is historically determined. What we know today about
the economic system is not something that we discovered this morning but is sum of all our
insights, discoveries and false starts in the past…” Accordingly, whatever we have achieved
or lost by today has not come through a sudden flight. They have been evolving over time
with or without our knowledge. Accordingly, if there is any one to be blamed for the
problems we face today and their continuity, the person is in front of the mirror.
2
Importance of Labour Market Issues
Why are labour market issues important for sustainable economic growth and prosperity? The
level of national output and the degree of production sophistication in any society depends
mainly on resource endowment, and how it is harnessed for the betterment of the society. The
degree of technological advancements, as well as the quality of human capital to suit that
technology, plays a catalytic role in that regard. Except for the natural resources, physical
capital and technology are developed and accumulated by people active in the economy, the
employed. Labour itself is a basic input, as at least a minimum level of labour is required to
fuel the production process. Accordingly, labour is at the very starting point of the production
process. Equivalently, the final beneficiaries of economic prosperity in any society are its
people. Accordingly, labour is involved at both ends of the economic prosperity.
Labour is the basic but most complex factor of production. It is basic, because at least a
minimum level of labour is at the foundation of economic growth. It is complex, because,
unlike other factors of production, it responds to changes in the surrounding working
environment. Further, labour is rational and tends to adjust its expectations in response, not
only to the current environment, but also to the expected changes in that environment and act
accordingly. It seeks ways and means of enjoying maximum benefits at minimum costs in all
forms. Hence, the long term outcome of development policies, and thereby the level of
development a society can achieve over time, depends mainly on how this delicate factor of
production is handled. Countries, such as Japan and Singapore, which are relatively poor in
natural resources, have reached relatively higher states of economic prosperity through
efficient and productive management of their virtually only resource, labour. As such, it is
imperative to comprehend the characteristics, changes, developments and problems
associated with the labour market and related areas to design policies to foster sustainable
economic growth.
Labour Market Variables
These variables have their own specific definitions, which could be somewhat different to
those generally perceived by laymen. Data on these variables are collected through various
surveys. There are internationally accepted definitions and standards for data collection. They
have to be understood and interpreted in economic analysis accordingly.
Labour force – is a pool of people who are economically active, in the sense that they either
are working or have a certain job to attend and if not, are prepared to work, if the
opportunities are available, or are actively seeking employment opportunities. It’s a pool, as
its level and the composition depend on the magnitude and the nature of inflows and
outflows. Inflows mainly depend on the growth and composition of the population,
effectiveness of education systems, levels and types of available economic activities and
social and cultural values. Outflows on the other hand, depend primarily on the age structure
of the population and migration. The nature of employment opportunities and government
policies too can affect the magnitude of outflows.
The labour force or the economically active population constitutes two main categories of
people: the employed and the unemployed. There is an officially recognized age group to
identify the labour force. However, it can vary from country to country and also from time to
time in the same country. The labour force participation rate (LFPR) is the ratio of the labour
force to the total population. Accordingly, the LFPR and its composition is one of the
representative indicators about the extent and the nature of productive labour available in the
economy.
3
Employment – is one sub set of the labour force and constitutes people who are either
working or have work to attend. Sometimes, a person out side of the officially recognized age
group also can be employed. Employment data can be analysed by various dimensions to
identify the nature and changes in economic activity in a society.
Labour Productivity – measures the degree of the contribution a given number of employed
persons offer to the economy. It is a multifaceted indicator and depends on the skills, training,
the nature of the working environment, government policies, and also attitudes with respect
to national responsibilities. Further, improvements in labour productivity help societies to
command and enjoy comparative advantages in international markets, which is imperative in
a fast changing global environment. A relative advantage in labour productivity is also an
important factor to attract foreign direct investment.
Underemployment - is a subset of the employed population. They are underemployed in the
sense that the number of their working days or hours are below their preference or officially
recognised norms. Underemployment and its prevalence among economic sectors, age
groups, and education etc. indicate the degree of utilisation of the productive capacity of
labour available in the economy and associated problems.
Disguised or hidden unemployment - represents another subset of the employed population.
They are employed according to definitional criteria, but their contribution to the production
process and to the economy is negligible compared to the benefits they enjoy by being
employed. However, it is hard to measure due to lack of data. Both underemployment and
disguised unemployment are associated with the employed population at low levels of
productivity.
The existence of both underemployment and disguised unemployment could give a highly
underestimated picture of the gravity of the problems associated with the utilization of
productive labour.
Unemployment – is the other subset of the labour force and constitutes people who are
neither working nor have a certain job to return to, but are actively seeking employment
opportunities or are willing to accept a job, if offered. The unemployment rate is the number
of unemployed people as a ratio of the total labour force. The unemployment rate is one of
the important final target variables of macroeconomic management. The unemployment rate
indicates the degree of usage of productive resources available in an economy. Therefore,
almost all societies strive to achieve fairly low and stable unemployment rates, as high
unemployment rates are root causes for various socioeconomic problems and political unrest.
4
Trends in Labour Market Variables
Population
Sri Lanka is among the countries with a low population growth. The average population
growth at present remains around 1.1 per cent with a tendency to gradually decline over time.
It has reached this current level following a significant and continuous drop in the past.
Population Growth and Projections
4.5
4.0
3.5
Percentage
3.0
2.5
2.0
1.5
1.0
0.5
Birth Rate
Death Rate
2031
2021
2011
2001
1991
1981
1971
1961
1951
0.0
Population Growth
Source: W. Indralal de Silva. IPS
The projections for birth and death rates indicate that in around thirty years from now the
death rate is likely to match the birth rate resulting in a zero population growth. Continuation
in these projected trends in birth and death rates beyond that point will result in a decline in
the overall population, a situation that some advanced countries have been experiencing, but
after having reached a
Population and Projections by Age
significant level of
100%
11.4
13.3
15.7
economic prosperity.
18.4
20.8
23.1
90%
25.8
29.1
10.8
12.0
Thirty years seems to
12.5
80%
12.7
13.7
be fairly short for Sri
15.3
70%
16.2
15.6
Lanka to reach such an
60%
56.0
impressive level of
50%
54.6
53.2
52.0
49.8
40%
47.2
economic prosperity,
44.3
42.4
30%
given
the
current
20%
average
pace
of
21.8
20.1
18.6
16.9
15.6
10%
14.4
13.7
12.9
economic growth and
0%
the
fundamental
2006
2011
2016
2021
2026
2031
2036
2041
economic and nonUnder 15
15 - 49
50 - 59
60+
economic
problems
that exist at present.
Source: W. Indralal de Silva. IPS, shares were computed by the writer
Then, it will be a major challenge to set and sustain a growth momentum at a significantly
higher pace to ensure a satisfactory level of economic progress. However, the expected
developments associated with labour would pose additional threats for policy makers, as the
gradual drop in the birth rate has resulted in an aging population which will aggravate further
over time and thereby, limit the more dynamic labour force and its growth to fuel the
production process in the years to come. Further, the change in the age structure is leaving
more elderly dependents on a shrinking young population to shoulder the burden while
supporting the economy. This situation is likely to pose many socioeconomic problems.
5
The dependency ratio, which is a crude measure of dependence (the ratio of the population in
the age groups below 15 years and above 60 years to the rest of the population), is projected
to rise at an increasing pace. It signals the need to allocate more resources in terms of
financing and services for the elderly population, which finally would impact on the
implementation, financing, and maintenance of long term development projects. This
dilemma is a great challenge.
Dependency Ratio
80.0
70.0
Per Cent
60.0
50.0
40.0
30.0
49.7
50.1
2006
2011
52.2
54.5
57.4
60.0
2021
2026
2031
65.3
72.4
20.0
10.0
0.0
2016
2036
2041
Source: W. Indralal de Silva. IPS, Ratios were computed by the writer
Labour Force Participation
Labour force participation indicates the
availability of productive labour for
economic activities. The LFPR depends on
many individual characteristics among
which age, gender, and the level of
education are prominent. Data on age wise
participation rates indicate that the
participation rate takes an inverted U shape
with age. People of both genders tend to
enter the labour force in the age group of
15 – 18 years. The participation reaches the
peak levels by around 35 years and falls,
thereafter. Gender wise data reveal that
Labour Force Participation by Age and Gender
100
90
80
70
60
50
40
30
20
10
0
10_14 15_18 19_ 24 25_34 35_44 45_54 55_64
Male
Female
64+
All
females tend to have significantly lower
participation rates than males across all age
categories. Data also reveal that
participation rates are closely associated
and rise with the level of education
attainment on average. Also the gap
between gender participation rates declines
with higher education attainment.
The participation rate is also sensitive to
the
availability
of
employment
opportunities, and changes in attitudes.
Labour Force Participation by Education and Gender
90
80
70
60
50
40
30
20
10
0
No Schooling
Primary
Male
Secondary
Female
GCE O\L
All
GCE A\L and
Above
Source: CFS 2003/04 CBSL
6
Sri Lanka has experienced three distinctive regimes with respect to labour force participation
since the 1950s. The three decades of 1950s, 60s and 70s marked fairly low participation
rates. The period from 1980s to 1990s saw fast increasing participation, probably due to the
expansion in all areas of the economy under a liberalised economic environment. However,
this surge in participation rate has been followed by a long stagnant regime with signs of only
marginal increase.
Labour Force Participation Rates
Male
Female
All
80
70
60
50
40
30
20
10
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1981
1971
1962
1953
0
The average pattern
of labour force
participation by age
in combination with
the projected trends
in the population
and labour force
highlights
the
gravity
of
the
problem Sri Lanka
is likely to face in
the future.
Source: Labour Force Surveys, DCS
Country Comparisons
30.0
20.0
Viet Nam
Thailand
Taipei, china
Sri Lanka
Singapore
Philippines
Pakistan
0.0
Malaysia
10.0
Korea
Labour Force Participation
Comparison of labour force participation rates across selected countries in the Asian region
indicates that Sri Lanka is among countries with relatively low participation rates,
particularly among females. Sri Lanka is next to Pakistan in that regard. This could be due to
different social and cultural factors, the impact of which could have been intensified by the
lack of opportunities for females to contribute to economic activities, while meeting social
norms and responsibilities. However, the lack of opportunities could be the main factor, as
female participation in the
Labour Force Participation Among Selected Countires
Male
labour force Sri Lanka is
not culturally affected to a
Female
90.0
high
degree
when
80.0
compared with Pakistan. It
also suggests that Sri
70.0
Lanka
has
enormous
60.0
potential
to
harness
this
50.0
idle
resource
more
40.0
efficiently and effectively.
Source: ADB Key Indicators
Employment (Domestic)
7
1000 Persons
Sri Lanka has been experiencing increasing in employment in all three economic sectors
along with the expansion in the economy over the recent past. However, comparison of sector
wise distribution of the Gross
Em ploym ent by Sectors
Domestic Output (GDP) and
3,000
the level of employment
indicates that growth and
2,500
employment generation have
2,000
not moved hand in hand over
1,500
time.
1,000
500
0
1995
2000
Agriculture
Industry
2006
Services
Source: Labour Force Surveys, DCS
Over a period of around a
decade from 1995 to 2006 the
services
sector
of
the
50.0
economy has grown at faster
40.0
pace than other two sectors.
Consequently, its share has
30.0
increased from around 48 per
20.0
cent in 1995 to around 57 per
10.0
cent in 2006, while share of
the employment in the sector
0.0
GDP
Emp.
GDP
Emp.
GDP
Emp.
has increased only marginally
from around 40 to around 41
Agriculture
Industry
Services
per cent during the same
1995 2000 2006
period. In contrast, the share
of agriculture sector in the overall employment has dropped marginally, while its share in the
GDP has dropped notably from around from around 25 to around 15 per cent. Both shares in
the industry sector have increased, however, the share of employment has increased faster
than that in GDP.
Source; CFS 2003/04 CBSL
GDP and Employment by Sectors
Percentage Share
60.0
According to one simple
measure of productivity, the
180.0
ratio of the GDP to the
160.0
number
of
employed
140.0
120.0
persons,
the
national
100.0
average
in
Sri
Lanka
has
80.0
60.0
remained between 130 and
40.0
135 thousand rupees per
20.0
0.0
employed person per year
1997
1999
2001
2003
2005
over the period from 1997
Period
to 2005 with a negligible
Agriculture Industry
Services
Overall
increase over the period.
The sector wise productivity
levels indicate that the agriculture sector, not only has a productivity level far below the
national average, but also has experienced a marginal decline over time. The two sectors of
industry and services have higher productivity levels than the national average with the
In 1000 Rupees per
employed person per
Year
Labour Productivity by Sectors
8
services sector leading in terms of the level of productivity and its improvements. However,
no sector has indicated satisfactory progress in this area over a period of around a decade, and
productivity has remained fairly stagnant. These developments indicate lack of focus on
productivity improvements in policy area.
Per cent
Per cent
Underemployment
Sri Lanka is characterized by a high level of underemployment.
The Consumer Finances and
Underem ployed by Sector
Socioeconomic Surveys (CFS)
30
conducted by the Central Bank of
Sri
Lanka, (CBSL) indicate that
25
more than 20 per cent of employed
20
persons who are willing to work 35
hours
or more in a week do not
15
have opportunities to do so. The
10
situation was worse in the rural
sector where the incidence is more
5
than 25 per cent in the last two
0
survey periods. The Estate sector,
Urban
Rural
Estate
All Sectors
while still having high rates of
1996/97
2003/04
underemployment, has seen some
reduction. The Urban sector, which
Underemployed by Production Sector and Gender
has more opportunities compared to
other sectors, also has considerably
40
high underemployment at around
35
15
per cent. The incidence by
30
gender and economic sectors
25
indicates that all three sectors,
20
Agriculture, Industry, and Services,
15
have underemployment above 15
10
per cent. The agriculture sector has
5
the
highest
rate
of
0
underemployment
of
more
than
30
Male
Female
Both
Male
Female
Both
per cent. The other two sectors too
1996/97
2003/04
have
underemployment rates above
Agriculture
Industry
services
All
15 per cent. Gender wise, females
have higher rates in the agriculture
Underemployed by Employment Sector
sector.
The situation had not
(As a percentage of the employed)
35
changed between the two surveys.
30
20
15
10
1996/97
All
Informal
private
sector
Semigovernment
0
Formal
private
sector
5
Government
Per cent
25
2003/04
9
Underemployment by different
institutional sectors of the economy
indicates that incidence is wide
spread among all sectors at around
30 per cent. However, it is
extremely high in the informal
private sector, which houses most
of the small and micro level
enterprises which could contribute
to the economy enormously if
harnessed effectively, like in fast
developing Hong Kong. While the under employment in all other sectors had dropped
marginally, the incidence has increased in the informal private sector in the recent past.
The province wise comparison indicates that the incidence of underemployment is also
widespread among all the administrative regions. Only the Western province and the Central
province have recorded rates below the national average, where the former has the lowest rate
probably due to high concentration of economic activities in this region.
Western
Underemploment by Provinces
There are a large number of reasons
for underemployment. Nearly 50
Southern
per cent of underemployment was
30.0
Northern
due to three reasons, namely, nature
25.0
of work (22%), reduction in
Eastern
20.0
economic activity (15%), and offN.Western
15.0
season inactivity (10%). A careful
N.Central
10.0
evaluation of these reasons reveals
Uva
5.0
that only a few are beyond the
0.0
Sabaragamu
control of policies and most can be
1
wa
All
reduced to a great extent by
Provinces
creating a conducive consistent
policy environment for economic activities to expand smoothly.
Central
Percentage
35.0
Reasons for being Underemployed
25.0
15.0
10.0
Unspecified
Other
Nature of Work
Part Time
Shortage of Raw
Materials or Fuel
Mechanical or Electricity
Failure
Labuor Dispute
Illness, Disability
Holiday, Vacation or
Leave
Bad Weather
0.0
Offseason Inactivity
5.0
Reduction in Economic
Activity
Per Cent
20.0
Source: CFS Reports, CBSL
Employment (Foreign)
Foreign employment has become important for Sri Lanka, both as a source of employment
opportunities to ease the unemployment problem particularly among females from lower
income families, and as a source of foreign exchange earnings to ease balance of payments
(BOP) problems. The estimated number of Sri Lankans employed abroad is around 1.5
million.
10
Male
Female
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
Number of Persons
The number of persons, both male and female, who have left for foreign jobs has been rising
significantly over the last 20 years with an exception in 1994. Further, females have been in
the lead throughout this period. Worker remittances, which have become a very significant
contributor
to
the
Departures for Foreign Employment
foreign
exchange
250,000
earnings of the country,
have also been rising
200,000
continuously. As a
150,000
result, the ratio of
private remittances to
100,000
current account receipts
of the BOP reached
50,000
around 19 per cent by
the end of 2005.
-
Total
Source: Sri Lanka Foreign Employment
Bureau
In Million US Dollars
However, these achievements are based on a work force with extreme gender and regional
concentration. Gender wise
there
is
very
high
Worker Remitances
concentration of foreign
jobs among females. Region
2,000
wise, the Middle East is
1,800
prominent.
Further,
1,600
1,400
employment category wise
1,200
the share of unskilled
1,000
employees
including
800
Housemaids is very high.
600
400
200
2001
2002
2003
2004
2005
Source: CBSL Annual Reports
Foreign Em ploym ent by Profession and Region
50,000
Professional
Number of Persons
45,000
Middle Level
40,000
35,000
Clerical
30,000
Skilled
25,000
Unskilled
20,000
Housemaides
15,000
10,000
5,000
Asia
Middle East
Other
Region
Source: Sri Lanka Foreign Employment Bureau
Bureauce Surveys, DCS
11
However, there are positive
signs. In recent times the
demand for skilled labour
has also increased. Further,
emerging
employment
opportunities in the Asian
region have been mainly for
males in both skilled and
unskilled categories. This
indicates
future
opportunities
for
employment, if exploited
effectively.
Departures for Foreign Em ploym ent - 2006
(Jan - June)
60000
50000
40000
Male
30000
Female
20000
10000
0
Asia
Middle East
Other
Unemployment
Sri Lanka has had significantly high unemployment rates in the past, particularly among the
females. However, the economy experienced significant reductions in the unemployment
rates in the 1980s subsequent to the availability of more employment opportunities following
Une m ploym e nt Rate s
35
30
Per cent
25
20
15
10
5
Overall
Male
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1985
1981
1975
1971
0
Female
Source: Labour Force Surveys, DCS
Unem ploym ent by Age
15 - 19
45
40
20 - 29
40.1
37.6
30 - 39
35
Per cent
30
Overall
30.3
25
20
23.3
17.4
15.9
15
10
23.4
22.2
15.3
12.3
8.4
8.0
7.6
6.3
3.6
5
2.9
0
1990
1995
2000
2006
Source: Labour Force Surveys, DCS
12
the unemployment rates among
both males and females, but at a
faster pace among the latter.
Accordingly, by the second
quarter of 2006 the overall
unemployment rate reached the
lowest level of 6.3 per cent
observed in the recent past.
However, the unemployment
among the females still remains
relatively high.
Per cent
Despite falling unemployment at the aggregate level, the unemployment rates by age and
level of education indicate that unemployment among the educated youth, which has been an
issue over many decades, still prevails, though with a lower intensity compared to the
situation in the past. The unemployment rates among the youth in the age groups 15 – 19 and
20 – 29 had dropped by 2006 compared to the rates in 1990 and 1995. However, there has
been no improvement compared to the situation prevailed in 2000. Meanwhile,
unemployment rates by education level have declined since 1990, and it also improved albeit
marginally compared to 2000.
Unemployment by Level of Education
Grade 5 to
Information on the duration of
GCE O/L
being unemployed indicates that
GCE O/L
29.4
30.0
around 77 per cent of the
GCE A/L
23.9
25.0
unemployed had been so for more
Overall
than a year. According to the
20.0
20.0
18.4
standards in advanced countries,
17.2
15.9
14.9
where unemployment for more
15.0
12.8
12.3
than three months is considered a
11.3
10.310.6
10.0
long term phenomenon, this is a
7.6
7.5
6.3
5.9
situation for serious concern. In
5.0
summary, all these developments
highlights
resource
waste,
0.0
1990
1995
2000
2006
frustration and social unrest
which no country can afford to
Source : Labour Force Surveys, DCS
continue with.
Conditions in the Domestic Labour Market
The Labour Market Information (LMI) unit under the Ministry of Labour Relations and
Foreign Employment collects data
Dom estic Dem and for Labour
on the market conditions through,
newspaper surveys, the JobsNet and
40%
other sources of information. These
data reveal mismatches with respect
53%
to both domestic and foreign labour
markets. According to these data a
7%
majority of the domestic vacancies
have not specified any gender
preference, while in cases where
Male Female Not Specified
gender has been specified, there has
been higher preference for males.
Labour Market Conditions
Clerks
Craft and Related Trade
Workers
140,000
130,000
120,000
110,000
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
-
Elementory Occupations
Legislators, Senior
Officials and M anagers
Plant and M achine
Operators and
Assemblers
Professionals
Service Workers and
Sales Workers
Skilled Agricultural
and Fishery Workers
Supply
Demand
Technicians and
Associate
Professionals
13
Data collected through JobsNet
based on the registered Job orders
and Job seekers reveal significantly
high disparities between the
demand and supply among almost
all categories of jobs. Some have
excess demand, while some have
excess supply. The overall supply is
greater which is reflected by the
unemployment figures as well.
Clerical jobs have the highest
excess supply, followed by the
Clerks
Excess Demand and Excess Supply
Craft and Related Trade
Workers
15.0
Elementory Occupations
13.0
Number of times
11.0
Legislators, Senior
Officials and M anagers
9.0
Plant and M achine
Operators and
Assemblers
Professionals
7.0
5.0
3.0
Service Workers and
Sales Workers
category of legislators, senior
officials
and
managers.
Excess demand is found in
the job categories of craft and
related
trade
workers,
elementary occupations, and
plant and machinery operators
and assemblers.
1.0
Skilled Agricultural
and Fishery Workers
-1.0
Technicians and
Associate Professionals
-3.0
1
Source : Labour Market Information Unit
The intensity of this mismatch is revealed by the ratio of the demand to supply. Accordingly,
the excess demand clerks is about 15 times while it is 13 times for the category of legislators,
senior officers and managers. There is excess demand of above two times the supply for
more technical and skill related categories of jobs.
Conditions in the Foreign Labour Market
According to the information from the Labour Market Information Unit, in case of foreign
employment opportunities, there is a significantly high demand for males with a share of
Foreign Demand for Labour, May - Oct 2005
around 88 per cent, while
8%
4%
females have only 4 per cent of
the available opportunities. This
is in contrast to the prevailing
employment structure where
females had greater dominance.
Accordingly, there is a gender
wise mismatch. Job category
wise too there is a significant
mismatch, when the existing
88%
employment structure and the
Male
Female
Not Specified
structure of the demand are
compared. In the existing
structure female housemaids
Foreign Demand For Labour by Job Categories
and unskilled workers have a
16.4
26.4
very high concentration,
where as the current demand
10.1
is for aspirants with more
skills.
11.0
24.1
12.1
Elementary Occupations
Craft and Related Workers
Plant and Mchine Operators
Salse and Service Workers
Technicians and Associate Professions
Other
14
Data on the demand and
supply of labour related to
foreign jobs reveal almost all
categories
of
have
mismatches. Unlike, in case
of the domestic market, the
demand is higher than the
supply indicating shortages in
all categories.
Foreign Employment Demand & Supply
Demand
Suply
2004
2003
2002
2001
300,000
200,000
100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2000
Foreign Employment Demand & Supply in 2004
Demand
Suply
Technicians and Associate
Prof essionals
Skilled Agricultural and
Fishery Workers
Senior Of f icials and Managers
Sales and Service Workers
Prof essional
Plant and Machine Operators
and Assemblers
Others
Elementary Occupations
Cref t and Relator Workers
Labour Market Information Unit
15
175,000
150,000
125,000
100,000
75,000
50,000
25,000
0
25,000
50,000
75,000
100,000
125,000
150,000
175,000
200,000
225,000
Clerks
Issues rising from labour market developments
Now we can see the current situation in the labour market with respect to several important
dimensions. They can be summarized as the following.








Population growth is slowing down and will reach zero level before long.
Consequently, the population is aging and the labour force is shrinking resulting in a
rising elderly dependency ratio that would pose increasing strains on limited resources
including active labour available for long term development projects.
Labour force participation is regionally low, particularly among females, and has been
stagnant for both categories for a long period.
Productivity levels remain low and stagnant in general, with the agriculture sector
experiencing deterioration
The incidence of underemployment has remained high among both males and females
in all economic sectors and among all administrative regions.
The foreign exchange earnings from foreign employment are high and rising, but the
current employment structure has a very high concentration on low quality jobs in the
Middle Eastern region.
The overall unemployment rate is falling, but the incidence of higher unemployment
among the educated youth still prevails with fairly longer durations.
Mismatch between the demand for and the supply of labor prevails with respect to
both domestic and foreign labour markets. In the domestic market, the supply of labor
is in excess for jobs in an office environment, whereas, in contrast, there are supply
shortages for jobs related to a field environment needing different types of technical
skills. In the foreign market there is excess demand for all categories of jobs.
Most of these observed developments and associated problems are interrelated and
cannot be handled in isolation. However, they all highlight the lack of comprehensive
and effective policies and their implementation to handle labour market issues in a
changing environment.
Possible Solutions and challenges
What are the solutions? The observations above indicate that some problems need medium term solutions, while some others need long-term solutions.

High levels of unemployment among the educated youth for longer duration could be
a combined outcome of lack of opportunities within an accessible location, poor
awareness on the available opportunities due to lack of information, lack of skills and
competencies which the existing educational system does not provide and the
influences of social attitudes and recognition which are in favour of white collar jobs
with job security and retirement benefits even with low payments. Accordingly,
viable solutions need to address these issues by providing skills development
programmes, particularly for school leavers with linking programmes with
prospective employers. Further, awareness programmes have to be launched to
nurture respect and recognition of all types of jobs that have a productive contribution
to the economy.

The availability of short-term and part time employment opportunities for new
entrants to the labour market, who wish to further their studies and/or acquire skills to
improve their employability in better jobs, could reduce the level as well as the
duration of unemployment among the youth with relatively low educational
qualifications. The rigid labour regulations most of which are outdated and limit
flexibility for hiring and firing employees with short notice is a constraint in this
regard, as the employers are reluctant to hire employees, though short term
16
opportunities are available. It also limits labour mobility across different jobs and
sectors, as employees fear to leave a job due to lack of opportunities. Accordingly, it
is imperative and a challenge to implement required adjustments in labour market
regulations to create flexible labour market environment. Most of the required
adjustments with respect to labour market have already been identified and drafted,
and are awaiting consensus and implementation, which is a challenge.

Mismatches among different job categories highlight imbalance in the education
system that has been prevailing for a long period. The education system has to mould
the future labour force to face challenges in the future. Hence, a dynamic education
system with foresight is a prerequisite. Fast developing countries have invested in
their human capital productivity with a vision and commitment for the future. Our
schools, universities, and technical colleges have not produced a diversified set of job
aspirants to suit current market environment. Almost all private sector institutions at
all levels have followed the same path. As a result an enormous amount of resources
have been wasted. Solutions to these problems should be found by restructuring the
education system with rational allocation of limited resources. It is a challenge.

Need for timely changes in labour market regulations and in existing educational
system to suit the changing environment have long been identified, but have not been
implemented due to resistance by many interested groups, particularly the labour and
student unions who emphasis on rights, with no reference whatsoever, to
responsibilities. This imbalance has created a mind-set, which is mainly concern with
raising demands without taking into account their financial and economic
implications. It needs to be realised that, only a healthy unity can meet workers’
demands and raise the standard of living. Therefore, a challenge is promote
commonality of interest and to see that industrial unity prevails without interruption.
Studies have indicated that a fair amont of such resistances is due to lack of awareness
building programmes with wide focus. The nature of the diverse labour market
conditions and their global trends and required preparations to exploit them to reap
maximum benefits should taught at primary stages of education so that the aspirants
to enter labour market will with clear mind sets about the opportunities and
requirements.

The incidence of low labour force participation rates and wide spread
underemployment rates at high levels indicate the lack of opportunities, infrastructure
and facilities for people to offer their maximum possible contribution to economic
progress. Delays in structural implementation of infrastructure projects and required
institutional changes have resulted in this grave situation, which the nation cannot
afford to continue with.
If these issues are not addressed, giving such needs due priority, the nation will be left
behind by other nations who have understood required changes and have implemented
them accordingly in time and also have sustained them and are moving fast in their
progress with the changing global environment.
17
Programmes in Progress
The above developments and related issues could raise the question as to whether this
information about the gravity of the problems is new to the policy makers and other
stakeholders. The answer is clearly no. The draft National Employment Policy for Sri Lanka
document has not only identified these problems, but also have suggested comprehensive
programmes to solve them through seven initiatives.
Vision Statement as stated in the Draft Report for Sri Lanka’s Human Capital reads as
follows :
Our overall vision is for Sri Lanka to be a provider of a Globally Employable, Competitive
Human Capital, which will propel us to unprecedented heights in the new millennium. Sri
Lanka will strive to be a place where any investor, foreign or local could find the required
human skills and expertise for their businesses; where people would be free to use their
talents to create value for all. Further, we will strive to be a leading provider of quality,
skilled manpower in the global market place where our people would create value to any
prospective employer, where our people will be able to enhance their quality of life through
gainful employment.
Accordingly, the Ministry of Labour has commenced the following programmes.

National Productivity Secretariat (NPS)
New programmes for career guidance, job creation and promotion of youth
employment

Jobs Net which is operating under the Labour Ministry provides a platform for both
job aspirants and employers to meet their requirements through matching the demand
and supply and taking the measures to meet prospective parties. This system has
reduced the search cost and information gap. Eighteen such centers are in operation
islandwide.

Labour Market Information (LMI) unit is compiling a data base from primary and
secondary sources to facilitate studies and decision making on key issues related to
the labour market.

Sri Lanka Bureau of Foreign Employment (SLBFE) has launched training
programmes for skills development targeting the foreign labour market. It also has
initiated a programme to improve welfare of the families of foreign employees.

Some of the universities with the assistance of the ministry of labour have initiated
currier guidance programmes in collaboration with private sector companies to
improve the employability of graduates.
18
The effectiveness of these policy measures has not been evaluated. However, the data on the
demand and training progrmmes conducted to prepare aspirants to meet market requirements
indicate that the participation is poor. That could be due to non availability of courses at
convenient locations or lack of awareness.
Completed VTI Students & No of Vacancies (2005 Jan - Apr)
Number of Vacancies
No of Students follow ed VTI Courses
Other
Management Trainees & Other Trainees
Elementary Occupation
Palnt & Machine Operators & Assemblers
Craft & related Workers
Skilled Agricultural & Fishery Workers
Sales & Service Workers
Clerk
Technicians & Associate Professionals
Professionals
Senior Officials & Managers
12,000
10,000
8,000
6,000
4,000
2,000
0
2,000
All in all, these findings highlight widespread drawbacks, the lack of proper understanding
and commitment at all levels of the society to raise and sustain the overall welfare of the
society including generations to come. A proper programme to educate on our strengths,
weaknesses, opportunities, and challenges and involve all stakeholders in the Nation Building
Project will undoubtedly entice required commitment and sacrifice, as it is practically hard to
engineer only commitment without respected involvement.
19
4,000