Among the various indicators that economists generally rely on to assess the health of the economy, the unemployment rate is one of the most basic. It is an important measure of a major avenue through which a nation’s citizens engage with its economy, which is the job market. Essentially, the unemployment rate looks at the percentage of those who are unable to find a job from among all those who are working and looking for work. 

Unemployment is a politically-sensitive topic too, since a growing number of job seekers who are unable to find work signal a dissatisfied voter base. According to the International Labour Organization (ILO), this rate provides useful information on how labour supply and demand interact and reflects the changes in the economy as it moves through periods of growth and decline. 

The mystery of unemployment

And yet, surprisingly, in the year that saw the worst economic crisis in Sri Lanka to date, where the economy shrank by 7.8%, the level of unemployment recorded was a mere 4.7%, which is in fact lower than that of the previous year. How is this possible? 

Looking at Sri Lanka’s recent history, we see that overall, the unemployment rate of the country has been relatively low and stable over time by international standards. Before 2022, the rate gradually rose as economic growth slowed and reached a peak of 5.5% during the Covid-19 pandemic period when the entire global economy experienced a major downturn.   

Likewise, it is reasonable to expect the unemployment rate to be affected by the recent economic crisis as well. However, according to the data at least, it appears otherwise. This is a curious case. 

Inspecting the data closely raises more questions than it answers: there seems to have been a fall in the unemployment figures of groups such as women (decrease by 1.4%) and young people aged 15-24 (decrease by 3.8%) who have historically shown relatively high unemployment levels compared to their older male peers. 

Intuitively, it could have been expected that the 2022 crisis and its countermeasures, such as controls on imports, hikes in utility prices, and high interest rates, would hinder economic activities at least temporarily, which would likely reduce job opportunities. However, this is not reflected in the data. Does this mean that workers were better off after the crisis because there was no apparent job loss in Sri Lanka? Or has the data failed to capture what had happened? 

Data inaccuracies?

A survey conducted by the Department of Census and Statistics (DCS) specifically to assess the impact of the economic crisis of 2022 reports that out of all those who were employed, around 14% lost their main occupation during the crisis. This is not reflected in the same institution’s Labour Force Survey. 

It is indeed possible that data-related inaccuracies can occur, especially during a period of political-economic instability in the country. However, there are also a few other theories that should be explored before one arrives at such a conclusion. 

We find one possible explanation for this mysterious phenomenon in a brief prepared by the ILO. It suggests that there is a delayed or lagged impact of the crisis, since the latest quarterly data shows a reversal of this surprising trend by mid-2023. Even so, this effect is mild and the expected level of severe unemployment did not materialise. 

Other useful indicators

This is supported by another, more convincing explanation, which is that the unemployment rate does not sufficiently reflect the impact of the recent crisis on jobs and workers and that it is therefore necessary to look into other indicators to gain a more thorough understanding of the job market in Sri Lanka. 

For instance, the ILO brief shows that there was a decline in the labour force participation rate by 2023 according to the latest quarterly data available. It also shows that the employment-to-population ratio fell as well. This seems highly plausible considering the closure of many businesses in the Small and Medium-sized Enterprises (SME) sector in recent years due to the impacts of multiple crises, from the Easter attacks and the global pandemic to the forex crisis of 2022. 

The brief also notes the role of migration in relieving the pressure in the labour market by providing job opportunities abroad, as seen by the surge in registrations at the Sri Lanka Bureau of Foreign Employment and the number of passports issued per year. 

Unlike during the pandemic of 2020 where economic growth was adversely affected globally and restrictions on international travel were widespread, finding employment outside of Sri Lanka was not an issue in the recent crisis. 

Rather, it was encouraged by the authorities in desperate need of remittance inflows. Even so, the working age population aged 15 years and above and those in the labour force did not show any significant change in this year, which is further evidence of the contradictions within the data. 

Too simple of a measure? 

Another aspect that should be considered is that the Labour Force Survey’s definition of unemployment is a simplistic measure of whether a person has searched for a job within four weeks and has been unable to find one. It fails to provide further information on the nature or duration of the work. 

Delving into other measures, the DCS survey on impacts of the economic crisis of 2022 shows that nearly half of those employed suffered from work breaks, reduced working hours, and payment losses. The marginal increase in underemployment in the Labour Force Survey, defined as a situation where a person works fewer hours than normal, supports this finding. 

In 2022, the percentage of those underemployed in relation to those employed rose to 2.7% from 2.5% in the previous year. While data on this is scarce, it is also worth noting that the unemployment figures fail to comment on the quality of jobs available and whether they can be considered ‘decent work’ or jobs that are safe, stable, equitable, and provide fair compensation. 

What about wages? 

Finally, one might argue that it is not only the availability of jobs that matters but also the income earned from working, since it is this income that allows citizens to sustain their lives and the lives of those who depend on them. 

The DCS survey on the impacts of the recent crisis finds that about 61% of income earners experienced a fall in their income at some point due to the crisis, while around 37% experienced no change and only about 3% of earners saw their incomes increase since March 2022. 

Taking this into account, we can look at the changes in wages for 2022, which shows that public sector wages grew by 16.1% while the formal private sector grew by 9.8% and the informal private sector grew by 24.8% as a result of demands for higher salaries given the rising cost of living. 

However, since the overall prices of goods and services in the economy increased at a much faster rate than wages, the number of items that could be bought with a person’s income, also known as their real wage, fell. 

In the public sector this fall was 20.6%, while in the formal and informal private sectors the fall was 22.7% and 17.5%, respectively. This shows that although a significant portion of the population may have been employed, the income they generated may not have been sufficient to maintain their previous lifestyles. This is confirmed by the rise in the poverty levels across the country. 

Ultimately, while it is difficult to comment on the reliability of the recent unemployment statistics, it is certainly clear that they are neither a sufficient nor an all-encompassing indicator of Sri Lanka’s job market at present. Relying on multiple sources of data will help verify these statistics. 

Moreover, looking into a range of indicators will allow us to gain a more accurate understanding of the conditions faced by the average citizen at the grassroots level, which is essential in setting up a reform agenda that is as realistic and as fair as possible. 

(The writer is a Programme and Research Officer at Arutha. Arutha is a Colombo-based policy think tank focused on economic research and communication with a special interest in public debt and taxation. Its economic civic education initiative, Default LK, was established during Sri Lanka’s first ever sovereign default in 2022)

Sri Lanka’s 2016-2023 unemployment rate 

Sources: Labour Force Survey, DCS