Trend of jobless growth in Lanka

The economy is growing but jobs are not increasing at the same pace in Sri Lanka. This trend towards jobless growth is reducing the benefits of overall economic growth, say experts.

Although Sri Lanka’s economy grew at around 5% over the last two and a half decades job creation has not kept pace. Employment growth has been around 2% to 3% per year during the period of 1980 to 2004, shows a study by the Institute of Policy Studies (IPS).

The study that was commissioned by the International Labour Organisation (ILO) and the United Nations Development Fund shows that poverty reduction too, has been insignificant despite the economic growth. At the moment nearly a quarter of the population is still living below the national poverty line.

“In Sri Lanka employment intensity is falling. This gives the indication of moving towards a possible state of jobless growth in the country,” said Ganga Tilakaratna from the IPS at a seminar on growth, employment and poverty reduction held recently.

Employment intensity shows the employment creating ability of economic growth. Sri Lanka’s employment intensity, as shown by elasticity of output, is around 0.4 to 0.5 over the last two and a half decades, indicating a low level of employment creation. While some sectors like manufacturing and services, have been successful in creating jobs, total employment growth for the country is seen below potential. The labour experts maintain that poverty reduction in Sri Lanka is not happening at the rate that it should, due to this reason.

“It is quite often assumed that economic growth will lead to poverty reduction. So why bother about employment? However studies have shown that a high rate of economic growth is necessary, but not sufficient, for poverty reduction,” said Dr Riswanul Islam, Director of the Economic and Labour Market Analysis Department of the ILO.

The ILO says productivity improvements and job creation, particularly in sectors where the poor are concentrated, must both take place together for economic growth to actually lift people out of poverty. The labour body also maintains that creating more jobs does not have to translate into inefficient growth where jobs are created without increased productivity.

“Employment intensive growth and productivity can go hand in hand. There is no conflict. The focus must be on productive employment because that is what raises incomes of the poor,” said Dr Islam. For this kind of productive employment creation, employment must grow at a slightly lower rate than economic output. “Employment growth lower than output growth implies an increase in labour productivity,” said Dr Islam. However, real wages must also increase with productivity increases if the poor are to climb out of poverty. The ILO says focussing only on increasing productivity will increase profits of businesses but will not lead to poverty reduction.

“If the focus is only on productivity and not at all on employment, this will mean focussing only on a very few people. So the benefits from the increased output that goes to lower income people will be very little. This could have adverse impacts on income distribution, inequality and poverty,” explained Dr Islam.

The labour experts suggest that Sri Lanka should focus on promoting productive growth in sectors like trade, manufacturing and construction that are highly labour intensive, to generate more jobs that can be filled by the poor.