Labour is the primary income generating resource for the majority of any country’s population. It is one of the major production factors in all sectors of an economy. Both the distribution of income and allocation of labour as a factor of production are coordinated by the labour market. Distortions in the labour market are therefore affecting the well being of a large part of our society. It is a social cost which include both private as well as opportunity cost. For an example persistence of unemployment may drop people below the poverty line, losses in human capital and creates psychological problems. In polecy formulation it is therefore, needed to address issues relating to labour market. When doing so, the information on the trends and behavior of the labour market variables is essential and crucial.

There are number of labour market variables namely, employment, unemployment, underemployment, labour productivity, wages, lay offs, job openings etc. But in this article trends in labour force, employment, unemployment and labour productivity are only the variables that will be discussed. Further, causes behind trends and structural changes in the labour market are also not focussed.

One of the important key labour market variables is the labour force participation rate which indicates the available resources for economic activities measured as a percentage of working age population. This comprises two segment of the labour market namely employed persons and unemployed person (those who are seeking jobs). The level of labour force participation depends on number of factors such as total population, working age population, age structure, level and quality of education, opportunities available, real wage, labour laws, management practices, cultural factors, family background and attitude of the employees and of the society as a whole. However, in general the labour force participation increase as economy grows at faster pace because more jobs will be generated with the expansion of economic activities leading to high economic growth.

The table 01 presents the labour force participation of Sri Lanka for last decade with other variables such as working age population and their growth rates. A low participation rate is still the a main characteristic of the Sri Lankan labour market. Of the 15,035 thousand of people in the 10 years and above age cohort 7,542 thousand were active in 2008 which corresponds to a 50.17 percent participation rate. The participation rate of men in 2008 was 68 percent and the participation rate of women was 34 percent (Table 01). These rates have undergone with marginal change during the last decade.

However in year 2006, there was a significant 2.9 percentage points increase in the total labour force participation rate which was partly due to the large decline of working age population with compared to the decline of total number of employed persons. Apart from these, having observation on the data given in table 2 and graph 1(a) and 1(b), an interesting characteristics in relation to the labour force participation in Sri Lanka can be identified. When comparing the labour force participation rate over the life span of the men and women, a striking difference is revealed. More and more men join the labour force as they aged so that male labour force participation rates is seen to continue to increase up until the age of 30 – 39 years after which it declines. The female pattern however is quite different. Generally, females tend to have significantly lower participation rates than males across all age groups. In total it is approximately half of that for men.

Particularly, female labour force participation rate over the life span shows two peaks at ages 20 – 24 and 30 – 39. This reveals that many women who are active become inactive during the age span of 25 – 29, most likely given up work to stay at home and care for children. Further, with compared to some other Asian countries and world, the labour force participation in Sri Lanka is low due to significantly lower participation rate of females.

The available statistics reveals that participation rates (total, male and female) are closely associated with the level of educational attainment. Although, thegender gap between male and female labour force participation rates by level of educational attainment, is much wider at lower level of educational, the gap declines significantly with higher educational attainment. This is supported by the sharp increase of female labour force participation with GCE (A/L) and above level of education.

The ageing population phenomenon has significantly changed the age composition of the Sri Lankan labour force, with the share of younger people significantly shrinking and the share of those older people strongly increasing. The percentage share of labour force aged 15 -19 has declined by 3.7 percentage points to 3.8 percent in 2007 from 7.5 percent in 1998. The contribution made by the people who are in the age group of 20 – 24 has also dropped from 14.6 percent to 11 percent during this period. But the share of those who are aged 40 and above has increased about 10 percentage points during the last decade indicating that Sri Lankan labour force is ageing at a faster pace. An increase of 14 percentage point of the share of older females within the female labour force from 37.4% in year 1998 to 49.4% in year 2007 evidences that, female labour force is ageing faster than male labour force in Sri Lanka.

During the period of year 1998 - 2007, Sri Lanka has experienced an increase in the number of persons in employment as the economy has expanded. The total number of employed persons has increased by 1066280 during the reference period. This increase associated with 564566 and 501747 number of employed persons for males and females respectively. The overall employment rate has increased by 3.6 percentage points from 90.8 % in year 1999 to 94 % in year 2008. Substantial changes in employment by gender, age, education and occupation have experienced. However the sectoral share of GDP and employment has not moved hand in hand, though there were some changes in terms of broad based industrial category. Over the period of past 10 years, the service sector in terms of GDP has increased faster than other two sectors (Agriculture and Industry). Its contribution has increased from 51.5% in 1999 to around 59.6% in 2007. But the share of employment in this sector remained almost constant at around 41.2% during the same period. Indicating highest performance, the industrial sector share in total employment increased by 4.7 percentage points from 21.9% in 1998 to 26.6% in 2007. This has mainly been contributed by employment share in manufacturing sector which accounted for 2.5 percentage point increase. Employment share in construction, mining and quarrying industry has also increased marginally by 1.1 percentage point from 6.5% in 1998 to 7.6% in 2007. But the employment share in agriculture declined from 36.3% to 32.2% by 4.1 percentage point during the reference period.

The employment share based on major industry, desegregated by sex, clearly shows that, majority of Sri Lankan employed women are engaging in agricultural sector (36.8% in 2007) with compared to their male counterparts. However agricultural share in both male as well as female employment has significantly declined. This is supported by the 8 percentage points and 8.4 percentage points reduction of agricultural share in male and female employment respectively during the reference period. Further, it is interesting to note that services sector share in female employment, climbed up to 36.1% from 31.4% while its male employment share remained constant during the period concerned. This may be a result of increase in female employment in service based informal economic activities. However to check whether this statement is true or false one should examine the female employment desegregated by economic activities.

Table 04 shows employment rates and changes in the share of employment or distribution of employment by age groups and by sex between 1998 and 2007. The share of youngest age group or youth (aged 15-24) and that of persons aged 40 and above has changed to a greater extent during this period. While the employment share for the age group 15 – 24 has fallen from 18% to 13.4 %, the share of persons those who are aged 40 and above has risen from 42% to 50.5 % during this period. On the one hand these changes definitely attributed to the burden on government budget in such a way that payments on Pension and Employment Provident Funds (for semi government workers ) will be going to rise. On the other hand reduction of the share of younger age groups in employment could lead to low productivity in the overall economy. Hence, in the era of globalization where we are going through, the strategies on life long learning particularly for old age employees has to be implemented in order to compensate the declining individual productivity with ageing.

The labour market prospects for persons who have attained G.C.E. (A/L) and above (upper secondary and above) level of education seems to be unfavorable in Sri Lanka and one of the most important reasons for the overall lag in employment could be the mismatch between educational attainment and labour market requirements. In 2007, the employment rate of this educational category (highly educated) was just 88.2 percent. However the contribution of this level of educational attainment to the total employment is recorded as 15.5 % with a significant increase of 4.5 percentage point since 1998.

The interesting feature is that, the contribution made by the workers who have attained high level of education is significantly higher among females than males. While female share of the G.C.E. (A \ L) and above level of educational attainment in 2007 was 20.4 %, its male share was just 13 %.

As far as employment by status is concerned the proportion (55% - 56%) of employed persons (wage and salaried workers in the government and private sector organizations) seems to be remain unchanged during the past decade. But, there is a significant increase of the share of own account workers. This is entirely due to 5.3 percentage point increase of the share of own account workers in female employment (see table 5)

 

The possible reasons for more than half of the working age population are not in labour force could be the domestic work ( particularly among women); those who are in younger age chort are in the system of education and other labour market imperfections such as labour market mismatch, large informal sector and existing working conditions. The measures to be taken to increase employment to population are therefore essential and critical especially at the situation where population is ageing.

The youth employment to population ratio (age 15 – 24 years) stands at very low level in Sri Lanka with compared to World and Asian averages. Out of total youth working age population 32.3% were employed and 8.7% were unemployed, in year 2007. Therefore total youth labour force or active youth population accounted for 41% of total youth working age population. The rest 59% remain as inactive youth. This 59% includes those who are in the system of education that approximately accounts for 45% of total youth working age population. The rest 14% neither in labour force nor in the education system. However there are few in the vocational training system as well. In a developing country like Sri Lanka, only few people particularly youth can afford voluntarily to stay out of the labour market.

Over the years the number of unemployed persons in Sri Lanka has been declining in recent past. In 2007, that number was around 164 thousand lower than the number in the year 1998. The rate of unemployment has also decreased by 3.7 percentage points from 9.2% to 5.5% between 1998 and 2008. Despite the decreasing trend in the unemployment level, the following characteristics with respect to behavior and situation of unemployment can be identified.

First, unemployment rate among females has been higher than that of male during the past. In 2007, it was more than double (see table 06) in comparison to male unemployment rate. Lack of employment opportunities for females within the areas where they preferred, social attitude, employment growth in male dominated industries such as Construction, Manufacturing (except garment and textile industry), Wholesale & retail trade, Repair of motor vehicles and Transport, storage and communication and family responsibilities could be the combined reasons for having high female unemployment in Sri Lanka. Further, the pressure on women unemployment could have been very serious problem. If there were no provisions and opportunities for women in the garment industry, and departure for Middle East countries looking for employment.

Second, the number of unemployed youth (aged 15 – 24) represents around 57% of the total unemployed in the country. In 1998, the share of youth unemployment in total unemployment was 62.7% and declined by 5.8 percentage point to 56.9% in year 2007. But the share of unemployed persons aged 15 – 19 went down to a greater extent from around 22% to 15.7% between 1998 and 2007. This is mainly due to significant decline in labour force participation of that particular age group. This is partly associated with more young people are entering to further education and training. However the youth unemployment problem in Sri Lanka has remained as a critical issue for policy makers.

Third, the composition of unemployment by level of education has been changing from less educated people to more educated people over the years. The labour market situation for females is highly unfavorable. The share of unemployed persons with G.C.E.(A/L) and above educational attainments was 14% in total male employed persons in 1998 and went up to 20.3% in 2007,

while its share in total female employment was 30.5% in 1998 and increased by around 13 percentage point to 43.4% in 2007. These statistics evidences, that unemployment among educated females are higher than that of males. However, in numbers this is less than the males because, female labour force is more or less half with compared to male labour force. Further, the comparison between change in employment share and unemployment share by level of education clearly show that, the percentage share of highly educated persons in unemployment has increased faster than its share in total employment.

On the other hand though unemployment rates are high among educated (G.C.E.(A/L) and above) males and females, the rates have declined over the years and down up to 6.6% in year 2007 from 9.5% in 1998 for males while this rate for females declined significantly to 17.4% in 2007 from 25.8% in 1998. The declining trend of unemployment among educated females to a greater extent could be the combined result of more educated women were employed and the reduction of female labour force aged 25 – 29 due to further education and other factors such as domestic work, most of them were give up hope because lack of employment opportunities

Apart from above mentioned recent trends and situation of the labour market variables such as labour force, employment and unemployment, there are other variables such as, employment elasticity, labour productivity, underemployment, real wages, industrial relations etc. are possible variables that could be used to analyze the labour market behavior. Though scope of this article is limited, understanding the situation of labour productivity in the country may help to see the recent advancement or drawbacks of the Sri Lankan labour market.

The average Labour Productivity, in both rupee value and US$ value shows an upward trend during the recent past. It has increased from (in constant terms) US$ 2561 in 2003 to US$ 2927 in 2008. The percentage increase was 14.3 %. This is an indication of smooth economic performance achieved during the period concerned.

The sectoral average labour productivity measured using sectoral GDP at constant factor prices and employment in that particular sector recorded the upward trends of the sub sectors such as Trade Hotels and Restaurant, Financial services, Real estate & Business services. In agriculture sector, labour productivity has decreased in 2004 and increased thereafter. Though, the average labour productivity has been increasing over the years in terms of LKR during recent past, it declined in 2004 and went up continuously in terms of US$ thereafter.

The labour productivity growth was positive for all mentioned sectors in 2007 and 2008. Although its average for agriculture was very low, the growth rate seems to be very significant. Both manufacturing (9.01%) and construction (5.74%) have contributed to the overall productivity growth of 8.53% in industrial sector in year 2007. The service sector has continuously maintained positive and considerable growth rate since year 2004. Two sub sectors in the Service sector named Financial Services, Real Estate & Business Services and Trade Hotel and Restaurant have contributed to a greater extent to the high growth of labour productivity in the service sector. In 2008, Transport and communication sub sector achieved around 16% productivity growth.

In summary, there are positive labour market developments in recent past and there are issues to be considered as well. On the positive side, unemployment rate has significantly declined. Though unemployment among educated youth is still high, it has dropped during the recent past. Further, the labour productivity has increased to a greater extent and some sectors have generated high growth rates.

On the other hand, still the unemployment among educated youth particularly among females has been a critical issue. It is noticeable that, structure of the labour force has been changing towards the old age workers. This ageing of labour force has important implications for the competitiveness of Sri Lanka, particularly if older workers do not make a significant contribution to overall productivity growth in the country. Therefore policies and strategies need to be formulated and implemented in order to overcome these challenges. In this connection, training and development, life long learning to cop up with new technologies, would be the ideal programmes. As a whole, attention must be paid to harness the true potential of the Sri Lankan labour force through building human capital to face the global labour market challenges and take up the opportunities available.