Enhancing Employment Opportunities and

Employability

Nisha ArunatilakeInstitute of Policy Studies of Sri Lanka

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%)

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

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

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

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

Labour Market Trends and Outcomes

Structure of employment Remained constant 1997-2003 (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

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, 20-29 groups)• More educated (UER: A/L 18%; O/L 13%; below

primary – below the national average)

Labour Market Trends and Outcomes

Real earnings Increased (1992-2002) 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

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

Labour Market Institutions – Severance pay Severance pay (TEWA- 1971 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

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

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

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)

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

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

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

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

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

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

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

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 …

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

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

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