1. Enhancing Employment Opportunities and Employability
Nisha Arunatilake
Institute of Policy Studies of Sri Lanka

2. Background About a quarter of the Sri Lankan population is poor
Moreover, a large number of Sri Lankans are vulnerable to income shocks due to:
(Individual) Sickness, disability, death and unemployment
(Community-wide) Droughts, floods, crop failure, and other natural disasters
Conflict
Sri Lanka has a rapidly ageing population
Share of 60+ population will double in the next 25 years (from 10% to 20%)

3. Background
Poor and the vulnerable groups who are most affected by inadequate and variable incomes include:
Informal sector workers in remote infrastructure poor areas
Children of these workers
Unemployed youth
Disabled
Elderly
Women

4. Background Labour is the most important, often only asset of the poor
Effective policies for management of social risks include helping the poor and the vulnerable to get better returns to labour, through
job creation,
equitable access to jobs
Access to adequate training

5. Outline of presentation
Labour market trends and outcomes
Labour market institutions, focus on:
Employment protection legislation,
Wage setting,
Recruitment policies
Enhancing Labour supply
Education and training

6. Labour Market Trends and Outcomes
Labour force participation (LFP)
LFP stagnant, despite economic growth
1994 to 2003 LF grew at 2.9%, mostly due to population increase
LFP varied across population groups
Male – 76%; Female – 35%
LFP low for young and old
LFP high for estate sector and rural sector

7. Labour Market Trends and Outcomes
Structure of employment
Remained constant (LFS data)
Distribution of workers among public, formal private, informal private, own-account workers and unpaid family workers
Particularly, large share of informal sector (65%) has remained constant

8. Labour Market Trends and Outcomes
Unemployment rates
Declined (by almost half) over recent years
16% in 1990 to 8.2% 4q2004
But, remain high among
Women (13% compared to 6% for men)
Youth (UE highest for 15-19, groups)
More educated (UER: A/L 18%; O/L 13%; below primary – below the national average)

9. Labour Market Trends and Outcomes
Real earnings
Increased ( ) for all, except for estate sector
Average wages, 2003
Public sector highest
private sector
Informal higher (high-end occupations)
Informal equal or less than formal (low-end occ.)
Other benefits for public and formal private sector
job security, paid holidays, paid sick and maternity leave, low effort levels

10. Labour Market Institutions
Job creation depend largely on overall growth and output
But, labour laws, unions, collective bargaining, core labour standards also affect job creation
Evaluate the impact of following:
Severance pay,
wage setting,
civil service hiring

11. Labour Market Institutions – Severance pay
Severance pay (TEWA Act)
Firing costs of workers in SL very high relative to other countries
High compensation, discretionary, lengthy
Recent Amendments: reduced arbitrariness, but payments remain very high

12. Labour Market Institutions – severance pay
Severance pay – impacts
Job creation and job destruction flows, unusually low in SL compared to other countries
This, adversely affects productivity growth
Limit access to “good” jobs – by reducing job creation.
Particularly to: women, youth and elderly, informal sector workers

13. Labour Market Institutions - wage setting
Wage setting, three-tier structure
Public sector
periodic recommendations by gov., cost of living adjustments
Private sector formal
Tripartite wages boards (minimum wages via collective bargaining)
Private sector informal
market

14. Labour Market Institutions – wage setting
Wage setting – effects
Wage differentials between, public, formal private and informal sectors
Particularly lower level occupations
Women earn less than men
Largely due to discrimination, rather than productivity differences
Positive side – no evidence of ethnicity-based differences in earnings
Civil sector hiring policies
Govt. ad hoc recruitment policies
Patronage-based appointments (political)

15. Labour Market Institutions - impacts
Wage setting and civil service recruitments – Impacts
Unemployment due to:
Unrealistic wage expectations/ skills mismatch
Queuing for “good” jobs in the public sector
Low job creation in the private sector

16. Enhancing labour supply
Lack of equal opportunities push workers into the informal sector
Informal sector workers -
Are in communities with high unemployment rates
Reside in rural areas with poor-infrastructure (roads, electricity)
Are the poor with limited investments in health and education

17. Enhancing labour supply - Education
Low education and low job prospects reduces education prospects of children of informal sector workers
Reasons for School drop-outs due to
High direct costs (50% financial constrains) of schooling
Low perceived benefits (41% happy with level of schooling, 7% additional schooling not useful)
Poverty (17% work, 26% help at home)
Low quality of schools attended by the poor
poor returns to schooling
Due to poor social networks

18. Enhancing labour supply- Education
Low intergenerational mobility due to vicious cycle of:
Limited education, location in rural areas
Reduce job prospects
Reduce school participation of children of informal sector workers

19. Enhancing labour supply - training
Moreover, informal sector workers in rural areas have little access to training
Factors positively affecting training
Parental schooling
Living in the Western Province
Schooling attainment

20. Summary Labour Market Institutions and practices
Hindered job creation and raised returns to the privileged,
Adversely affected equity
Constrained restructuring capacity and investments of businesses
Contributed to unemployment and expansion of the informal sector

21. Summary Limited education, location in poorer rural areas have
Created a group of low-educated workers with little prospects and hope
Reduced access to better paying jobs
Reduced expected returns to schooling
Reduced schooling participation of children
Increased poverty
Reduced access to good quality training

22. Policy Options Encourage job creation through reducing job protection
Reducing the costs of termination
Reduce severance pay; Avoid double compensation (gratuity plus severance pay)
Allowing individual layoffs, without notifying the Commissioner –
Time saving
(no need given the generous severance pay)
(except in the case of large layoffs)
At the same time improve worker protection …

23. Policy Options Improve worker protection
Unemployment insurance, to overcome possible adverse effects of reduced job protection
Link UE insurance programs to micro finance and workfare
Ensure coverage of worker protection to the informal sector

24. Policy Options
Avoid direct government interventions on wage setting (except minimum wages)
In order to reduce the wage premium paid to formal sector workers
Reform civil service recruitment practices
That raise expectations, and influence unemployment
Promoting social dialogue
To facilitate the process of moving from job protection to worker protection

25. Policy Options Improve access to education and training
Improve access to job training, assist job search, help start self-employment to vulnerable groups –(informal sector workers, unemployed,women, youth, disabled)
Direct programs to less covered regions
Other issues –
Improve relevance and quality of existing programs by linking them with industry
Improve affordability of better quality training programs through scholarships, student loans and voucher systems
- Studies to identify best practices

26. Thank you