In March, the Cabinet of Ministers approved a proposal to increase the national minimum wage by Rs. 5,000, increasing the minimum wage from Rs. 12,500 to Rs. 17,500, following a recommendation from a tertiary subcommittee composed of trade unions and small- and medium-level entrepreneurs appointed under the National Labour Consultancy Board.

However, the increase in minimum wage is not enough to sustain a family in Sri Lanka given the current economic conditions – the official poverty line at national level by February stood at Rs. 16,975 and the Colombo District poverty line was at Rs. 18,308.

However, the Government does not appear to have a proper and regularly-implemented mechanism to revise private sector salaries, despite the sector being the engine of the economy.

This is in an environment where headline inflation reached 49% in March last year and 2.5% in March this year, while the prices of essential food items such as rice have increased by 20% (as of 10 May) compared to last year.

Against this backdrop, The Sunday Morning decided to look into the salaries of the private and public sectors and a method to determine salaries based on data while highlighting the importance of salary hikes for economic expansion.

A survey on private sector salary 

According to the online survey platform Salary.lk, by the end of 31 December 2023, database and network professionals with 15 years of work experience earned a monthly wage ranging from Rs. 75,534 to Rs. 219,109, while 31% of workers in this occupation were parents of at least one child.

Workers in this occupation work 41 hours per week on average. According to the survey, coverage by collective bargaining among employees is set at 1% and 99% are not covered by a collective agreement.

Employees mostly work in organisations consisting of 500 or more people; 38% of all participating employees work in a multinational organisation, 26% of workers in this occupation state that they have no permanent contract for their job, and 74% of workers have worked fewer than five years since their first job. 

Meanwhile, 74% of employees state that they have a permanent contract for the work that they are doing. In most cases, employees report that the majority of their coworkers are male.

In the survey, 2% of the employees chose ‘highly dissatisfied’ as their job satisfaction level. On the whole, employees feel satisfied about their jobs – a feeling shared by 35% of them. Among the workers, 28% reported they were between satisfied and dissatisfied with their wages. Generally, 33% of the people in this job reported they were dissatisfied with their salaries.

A senior source from the Ministry of Finance provided a vague answer about this issue, stating that the Government was currently taking several measures to tackle the existing problems in the private sector, including salary-related issues, and added that there were different departments handling these areas. However, the source did not want to divulge more information or be quoted. 

Speaking to The Sunday Morning recently, Commissioner General of Labour H.K.K.A. Jayasundara stated that, similar to the Rs. 10,000 salary increment granted to all Government employees under the 2024 Budget, the Government was currently considering a fair and equitable increase in the mandatory minimum wage for private sector employees.

He revealed that the Government was looking at amending the National Minimum Wage of Workers Act No.3 of 2016 to facilitate this increase.

“The National Minimum Wage of Workers Act of 2016, which was subsequently amended, initially set the minimum wage at Rs. 10,000. After the amendment, it was increased to Rs. 12,500. There is a proposal to amend the act further and we intend to consider it over the coming days,” he stated.

Need of the hour

In the aftermath of the 2022 economic crisis and the resulting high inflation, there is a pressing need to raise the minimum wage for private sector workers in Sri Lanka.

This need is highlighted by the fact that while the minimum monthly wage in Sri Lanka stands at Rs. 16,000, the official national poverty line as of November 2023 is Rs. 16,302. Therefore, any private sector employee earning the minimum wage essentially falls below the poverty line.

Speaking to The Sunday Morning, Frontier Research Senior Macroeconomist Thilina Panduwawala said that from an economic expansion perspective, higher income would increase demand, which would also allow for increased lending as banks and finance companies would also be looking at people’s income when providing credit.

Therefore, he added that an increase in providing personal loans would increase credit growth, supporting economic expansion.

For example, he said that when public sector salaries were increased in 2016, it also led to an increase in private sector salaries, expanding credit quite significantly.

“But the issue is that the supply side is still constrained, so people having a higher income will use it for paying debt and meeting some income constraints, especially in the lower salary bracket,” Panduwawala said.

He stressed that when prices of vegetables and rice rose early in the year, there was volatility in prices and the overall cost of living as the supply was limited along with income.

“If it’s not happening alongside improvements in supply – both domestic, especially in food and beverage, and also imports, because the Government still maintains a lot of high import tariffs – you can see price mismatches as income suddenly drops and people start complaining about increases in prices,” he added.

Therefore, he said that an increase in income should ideally happen alongside further reductions in import tariffs, so that it improves the supply side.

Sudden increases and economic macro-disruptions

Panduwawala said that, from a macroeconomic perspective, when salary increases, it increases finance, especially for the Government. 

He added that the Government should balance the responsibility of increasing taxes to meet primary balance targets versus supporting the public sector. “Just increasing public sector salaries can create a negative perception on the private sector side, as they might think they are paying higher taxes to fund higher salaries for the public sector,” he said.

Moreover, he said that some salary increases were happening in the public sector as well as in the private sector. 

“But it’s happening in a gradual manner, with the economy recovering. As supply sides, including finances of the private sector and Government, improve, they are able to deliver,” he said.

He noted that if salaries were increased suddenly, other macroeconomic disruptions, such as price volatility issues in meeting fiscal targets, could take place.

Determining the minimum wage

Speaking to The Sunday Morning, Economic Analyst Dhanusha Gihan Pathirana said that the first step the Government should take in setting wages broadly, both in the private and the State sector, was to consider the living cost published by the Central Bank of Sri Lanka (CBSL) for 2023, which featured the living cost necessary to maintain minimum standards of living as per the price levels of last year.

He said that this gave a figure of around Rs. 103,500 per family while the average number of income earners in a family in Sri Lanka, according to the Department of Census and Statistics, was about 1.8. 

“Then the minimum wage should be a fraction of this ratio, taking the numerator as the minimum living cost for a family and the denominator as the average income earners per family, which would calculate to something like Rs. 57,500 as the minimum wage,” Pathirana said.

According to the CBSL’s Annual Review for 2023, nominal wages in the informal private sector recorded an increase in 2023 compared to 2022, mainly due to the demand for higher wages by daily wage earners, owing to the rising cost of living and shortage of labour supply.

Meanwhile, on an annual average basis, real wages recorded an erosion during the year across both the private and public sectors. Nevertheless, available wage indices – the informal private sector wage rate index (2018=100), formal private sector minimum wage rate index (December 1978=100), and public sector wage rate index (2016=100) – exhibit certain limitations in capturing the overall wage developments of the economy.

The CBSL also said that the nominal wages of employees in the formal private sector, as measured by the minimum wage rate index (December 1978=100) compiled by the Department of Labour of employees whose wages were governed by wage boards, had recorded a slight increase in 2023. 

Accordingly, the nominal minimum wage rate index increased by 0.4% in 2023 compared to the previous year. Nevertheless, the minimum real wage rate index decreased by 17.6% in 2023 compared to 2022.

Nominal wages of public sector employees, as measured by the public sector wage rate index (2016=100), remained unchanged in 2023, recording a real wage erosion of 17.5% compared to the previous year.

Accordingly, by February, the public sector employees’ nominal wage rate increased to 147.2 as opposed to 133.1 in the corresponding period of 2023. 

Meanwhile, the nominal wage rate index of informal private sector employees increased to 179.2 in February, from 167.3 in 2023.

Setting up a formula to determine wages annually

According to Pathirana, the second step should be to come up with a formula for increasing the wage rates annually because the market system which determined this or determined the distribution of income between profits and wages was highly beneficial towards profits at the expense of wages.

“This is something we see throughout the private sector, so we need a wage formula that will reflect the real growth in incomes and net incomes of a firm and tie that to the rate of increase in wages annually,” he added.

Moreover, he said that the formula would annually determine the rate of increase in wages, without making it necessary for the workers, management, and owners to clash. “What I can propose is that the increase in wage rates should be tied to the change in the ultimate market prices and also the changes in output or sales,” he said.

He stressed that output and sales were taken as synonymous and minus any indirect taxation that could have resulted in the change in the prices and minus the increase in the production costs, apart from that of wages, which was like the input costs of raw materials.

Pathirana said that a set formula would determine or enable a more fair distribution of income even at the firm level as the accounts of most private companies were not transparent as the companies were not listed.

He added that although workers did not know what was going on in terms of profits in a firm, they had a relatively good idea about production costs, because they engaged daily with supplies, purchasing, direct production, and so on. 

“The workers are capable of having access to direct information on unit production costs, so the room for information asymmetry is minimised in this form of a formula,” he said.

He added that having a formula would also prevent the unfair profiteering of the private sector by this monopolistic or legalistic increase in supply prices because the advantage of doing so would be minimised. 

He noted that a fraction of the increase in profits going to the next cycle, where it would reach the hands of workers in the form of increased wages, would keep a lid on the country’s price levels, improve living standards, and ensure fair distribution of income. “These same wage rates that are set in the private sector can then be utilised as a proxy or as a reference point to set wages in the Government sector,” Pathirana said.