ILO defines decent work to be “opportunities for women and men to obtain decent and productive work in conditions of freedom, equity, security and human dignity”. This definition ‘implies the availability of employment for all those who are available and looking’ for work. Since the release of the 2007 World Development Report, the need for improving employability of youth and the need for providing productive employment opportunities for youth has received renewed interest. As elaborated by the report, it is necessary to help youth to move from school to work fast, not only as a means of reducing youth poverty, but also as a means of improving the economic well-being of youth in their adult lives. Youth who get productively employed are best able to make optimum use of their investments on health and education. Among other things, they learn essential interpersonal, organizational and time management skills that will help them be more employable in later life. Is the Sri Lankan labour market providing opportunities for productive employment? This article will examine the labour market outcomes in the country in general, but specifically that of youth, with a view to better understanding the performance of the labour market in improving productive employment in the country.

In recent years the unemployment rates in the country has decreased markedly. The overall unemployment rate decreased from 14.5 in 1992 to 6.4 in 2006. This decrease in the overall unemployment rate is mainly due to the decrease in the unemployment rate of youth – that is those in the 15 to 29 age group. However, despite these reductions, comparisons with world averages shows that the youth unemployment rates in Sri Lanka are still very high.

Do the reductions in the unemployment rate imply an improvement in the labour market? ILO (2006) argues that the unemployment rate alone may not be a good indicator of labour market performance. For one, unemployment rate does not capture discouraged individuals who have ceased to participate in the labour market. It also does not give an indication of the nature of employment – that is whether individuals are employed in ‘decent work’ activities. That is, workers have reasonable working conditions, they are adequately compensated for the work that they do and that they have social protection. To get a better understanding of the labour market performance, one must also look at the propensity of the labour market to create employment, the type of employment created by the market and the activities of individuals who do not participate in the labour market.

The best indicator available to measure the ability of the labour market to create employment is the employment-to-population ratio. This provides a measure of the proportion of the population that is employment. The employment-to-population ratios for Sri Lanka show that they are lower for younger age groups, compared to their older counterparts; they are also low compared to the regional averages for other countries. This indicates that the ability of the country to create work is not very good. The employment to population ratios shows that overall, only about 50 per cent of the working age population is working. This percentage is lower for younger age groups, particularly those in the 15 to 19 year age group. Comparisons of employment-to-population ratio for Sri Lanka with the regional averages for the world show that Sri Lanka’s youth employment-to-population ratio is very low. It is lower than all regional averages considered, with two exceptions (See table 01).

In order to get a clear idea about the labour market performance of the country we should also look at the types of employment created in the country. The data shows that the majority of employment is created in the informal sector; 72 percent of male workers and 64 percent of female workers worked in the informal sector. The proportion of workers in the informal sector was higher for younger males than their older counterparts. But, for females it was lower, mainly due to employment in the manufacturing sector. Although employment in the manufacturing sector did provide an opportunity for employment in the formal sector, it rarely provided opportunities for long term employment. The main source of employment for males and females was the private sector. The private sector employment for males was mainly in the informal sector, while it was equally split between the formal and informal sectors for females, again due to higher employment of young females in the manufacturing sector.

Another indicator commonly used as a measure of the labour market activity level and the level of development of the economy is the ‘status in employment’. This indicator distinguishes amongst the wage or salaried workers, self-employed workers and unpaid family workers. With economic development, countries usually experience a shift away from agriculture towards industry and service sectors. This results in a corresponding increase in wage and salaried workers relative to other two types of workers. As seen in table 6, a large proportion of both males (40 percent) and females (44 per cent) work as own account workers or as unpaid family workers, which shows that the ability of the economy to create wage or salaried work opportunities are still low in the country. This is despite a reduction in the proportion of employed in agriculture as a percent of total employed, and an increase in the proportion of employed in both the industry and service sectors. Time trends from 1996 to 2006 shows that as a proportion of the total employed, the proportion of wage or salaried workers have increased from 1996 to 2006; for the self employed this increase is by four percentage points while for the unpaid workers it is by half a percentage point.

The unemployment rate in the country especially that of youth has declined sharply over the past few years. However, this does not necessarily mean that the labour market in the country is performing well. The above analysis shows that the country has much scope to improve its labour market performance. The ability of the economy to create jobs is low, even the jobs that are created are mainly in the informal sector. Close to half the jobs that are created are ‘vulnerable’ jobs (i.e., work as own account workers and unpaid family workers). This analysis shows the need to promote investments to facilitate the creation of productive jobs in the market.