Trends in Labour Markets and Future Challenges- The Sri Lanka Experience

The Labour market continues to be a popularly debated topic mainly due to criticism on market rigidity, poor productivity and continuing mismatch etc. Listening to C. P. A. Karunatilake Central Bank Director of Statistics what’s more disturbing is the immediate adverse effects of the ongoing slowing down of the population growth and its consequent effects of the aging population, shrinking labour force, resulting rising elderly dependency ratio that would pose increasing strains on limited resources including active labour available for long term development of the country. Karunathileke was addressing the monthly lecture at the Centre for Banking Studies in Sri Lanka at the Central Bank of Sri Lanka auditorium.

Rising dependency
The dependency ratio 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 signaling the need to allocate more resources in terms of financing and servicing the elderly population which will obviously impact the economy of the country adversely.

Australia moves to arrest the skills shortage Countries like Australia have already made extensive plans to mitigate the risks of labour and skill shortages and the professional associations; governments and industries have come together to solve the skills shortage crisis to avoid risks to the economy.

It is reported that everyone from politicians to professionals are taking action. It is further reported that Australia will have to increase the migrant intake to stop the economy from stagnating in coming years. According to Business Information Company IBIS World without more migration to offset the nation’s ageing population and low natural birthrate the economy would suffer and key industries would lack sufficient staff.

Continuing Macroeconomic deficiencies
Sri Lanka has been plagued with macro economic problems of high unemployment, slow growth persistent current account deficits and further complications of war damage and rising oil prices. Globalization and the consequent effects of liberalized trade, and advancement of technology have changed the dimensions of the macro economic problems globally and Sri Lanka is not an exception.

Labour the most complex factor of production
Though often not given much thought as Karunathileke points out labour is the most complex factor of production and is the base level of economic growth that provides a foundation for other factors. Labour responds to changes in the working environment, seeks to find ways and means of maximizing benefits and minimizing costs. Given these sensitivities outcome of the development rests largely on managing this delicate factor. Japan and Singapore has been quoted as examples of countries of relatively poor in natural services but have reached a high degree of economic prosperity through efficient handling of this delicate resource labour. As a country boasting of a high rate of literacy from the early part of the twentieth century have we been able to maximize the productivity of this vital resource? Recently the World bank Country Director addressing the private sector in different ways posed the same question by tracing Sri Lanka’s strength factors in rich culture and history and educated and healthy human capital.

Continuing poor productivity
Central Bank Economist Karunathileke confirms that productivity levels remain stagnant with worst repercussions in the agricultural sector. The country situation and the poor transport facilities too play part in productivity. Given the high concentration of economic activity in Colombo and Gampaha districts passenger and goods transport reaching these two cities are significant and the over crowded trains and buses tells the story of harassed passengers and their potential output. Another issue is the growing militancy among trade unions led agitations disrupting many man hours.

Sri Lanka today depends heavily on the worker remittances (averaging US$ 2 billion) per annum and rising steadily from year to year to mitigate a widening current account deficit this source is concentrated heavily on the low quality Middle Eastern regions now going through a steady destabilization process.

Need for educational reforms
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 rigid preference for white collar jobs with security. Sri Lanka an importer of education services and a thriving market for foreign education service providers is yet unable to provide degrees outside the established university system due to political reasons. This unfortunately shuts the doors of higher education to many qualified youth to obtain quality higher education. If the state cannot provide quality tertiary higher education to these youth the private sector should be permitted to do so under a regulatory system. If no relief measures were taken the mis match would continue

Labour market rigidities
Labour market rigidities and its consequent adverse effects for further employment generation have been stressed for years. Whatever the proposed measures to arrest this trend has been resisted by labour unions.

Sri Lanka’s challenge
The challenge to Sri Lanka is to address these issues and take remedial measures in the interest of the younger generation who have grown up in conflict-ridden times. No action would result in neighbouring Asian nations including former communist regimes like Vietnam reaping the benefits of growing Asian Economic power leaving Sri Lanka behind.