• Inequality worsened during 2019-2022, widening gap between rich and poor
• Economic crisis has reduced quality of employment in job market
• Workers have moved from industry and services sectors to agriculture sector
• Higher share of agri workers fall into category of low-paid informal workers
• Industry sector hardest hit by crisis, followed by services and agri sectors
• Establishing macro stability and facilitating job creation key for SL’s recovery
• Improve access to quality jobs that provide social protection, adequate incomes
• Nearly 60% of working-age population low-skilled, with below O/Level education

Poverty levels in Sri Lanka have more than doubled from 2019 to 2022 from 11.3% to 25% according to World Bank estimates and inequality has also worsened during this period, indicating a widening gap between the rich and the poor, stated Institute of Policy Studies (IPS) Director of Research Dr. Nisha Arunatilake, in an interview with The Sunday Morning. 

Outlining steps that should be taken to bring households out of poverty, Dr. Arunatilake pointed out that in the short term, establishing macro stability and facilitating job creation were key for bringing households out of poverty, while in the long term, it was important to improve access to quality jobs that provide social protection and adequate incomes. 

She emphasised that such jobs were more resilient to economic fluctuations and provided protection against adverse shocks: “Economies with quality jobs recover from economic downturns faster, as households can continue to maintain consumption levels because of social security. This not only helps the households but also helps the economy.”

In the course of the interview she also spoke on the impact the economic crisis has had on the job market, especially in terms of hardest-hit sectors, the promotion of quality job creation in the country along with skill endowment, the implementation of a decent work agenda, and improving access to jobs for women and the youth.

Following are excerpts of the interview:

What impact has the ongoing economic crisis had on poverty levels in Sri Lanka?

Poverty levels in Sri Lanka have more than doubled from 2019 to 2022 from 11.3% to 25%, according to World Bank estimates. The inequality (measured by the Gini index) also worsened during this period, indicating a widening gap between the rich and the poor.

This is according to World Bank estimates using the lower-middle income poverty line – $ 3.65 adjusted for purchasing power parity. The national poverty levels estimated by the Department of Census and Statistics (DCS) using its Household Income and Expenditure Survey (HIES) data is only available up to 2019. The HIES has not been conducted since then due to the Covid-19 pandemic.

How has this impacted the job market and income levels in Sri Lanka?

The 2022 economic crisis has mainly impacted the job market by reducing the quality of employment, rather than by reducing the availability of jobs. Workers have moved from the industry and services sectors to the agriculture sector. 

The share of workers in agriculture increased from 2019 to 2022 (by 1.2 percentage points), while the share of workers in industry and services declined (by 1.1 and 0.1 percentage points respectively). This shift indicates a decline in the labour market, as a higher share of agriculture workers typically falls into the category of low-paid informal workers not covered by social protection. 

Which sectors have been the hardest hit?

The industry sector was the hardest hit by the crisis. According to the Central Bank 2022 Annual Report, the Sri Lankan Gross Domestic Product (GDP) contracted by 7.8% in 2022. 

Sector wise, the largest contraction (16%) is seen in the industry sector, while services and agriculture sectors also contracted (by 2% and 4.6% respectively). Within the industry sector, the manufacturing and construction sub-sectors were particularly affected by the crisis. 

What steps should be taken to bring households out of poverty?

In the short term, establishing macro stability and facilitating job creation is key for bringing households out of poverty. In the long term, it is important to improve access to quality jobs that provide social protection and adequate incomes. Such jobs are more resilient to economic fluctuations and provide protection against adverse shocks.

Economies with quality jobs recover from economic downturns faster, as households can continue to maintain consumption levels because of social security. This not only helps the households but also helps the economy. 

In moving towards economic recovery, how can we promote quality job creation in the country, along with skill endowment?

The creation of high-paying formal sector jobs has the highest potential to move people out of poverty. But only people with high skill levels (i.e., some post-secondary education) can do such jobs. Only 4.2% of the working-age population in the country are degree holders. 

Nearly 60% of the working-age population are low-skilled (those with below O/Level education). In the short term, it is not possible to move such workers to high-end service sector jobs in urban centres. In the immediate future, attention should be paid to improving the productivity of low-skilled jobs outside the Western Province and promoting job creation for low-skilled workers. 

In all provinces other than the Western Province, 30% or more workers are in the agriculture sector. Hence, increasing agricultural productivity and investing in developing agricultural value chains and agro-based industries has the potential for creating better jobs. 

In the longer term, investing in expanding high-end service sector jobs, and investing in skill development beyond the school level so workers can access these jobs can improve the resilience of the labour market to economic fluctuations. 

What steps would you recommend for the effective implementation of a decent work agenda in Sri Lanka?

To be successful, a decent work agenda should be based on the country’s context. At present, although agriculture’s contribution to the GDP is low, the sector is an important provider of employment. This is especially so outside the Western Province. Most agriculture workers are low-skilled; hence, they are less likely to benefit from the creation of jobs requiring high skill levels.

In the short term, the Government should focus on improving the productivity of the agriculture sector and agro-based industries. Existing policy documents have already identified strategies needed in this regard, including effective extension service, land reforms and deregulation, and programmes for modernising the sector. 

Previous policies have experienced limited success due to constant changes to the governance structure, limited resources, and the limited capacity of the public sector to implement the programmes. Any attempts to revamp the agricultural sector should address these challenges faced by the sector going forward.

While improving the productivity of the agriculture sector, it is also important to develop the rural non-farm sector. This is because of the lack of high-paying formal sector jobs in the agriculture sector. Outside the Western Province, the manufacturing sector has the highest potential for creating formal sector jobs. However, the sector is highly vulnerable to changes in the global economy. 

Another sector that has performed well in the past is the construction sector. This sector showed the highest growth in the 2016 to 2021 period. However, this growth was driven by public investments in the sector. With the fiscal constraints facing the Government, the potential for public sector investments in the sector will be limited. But, with growth, the private sector demand might increase. 

The sector is finding it difficult to attract workers. The demand for construction-related technical training is also low. This is partly due to the low wages and informal nature of construction sector work. Regulation to raise the quality of construction sector jobs can attract more workers to the sector.

Another potential area for the rural sector is the ‘wholesale and retail trade’ sector jobs. At present, many of the jobs in this sector are informal sector jobs. The experience of Covid-19 shows that the use of Information and Communication Technology (ICT) can boost the productivity of this sector. Regulation to improve the quality of jobs in the sector and training to improve skills can help to expand decent jobs in this sector. This could also provide a means of connecting rural markets to consumers living in urban areas.

Accommodation and food service activities is another sector with a lot of potential. The level of informality is still high in this sector. The Government has also shown an interest in investing in the sector. Training and improved services for the sector can provide the necessary impetus to develop the sector. 

Successive governments have emphasised driving growth through improving the knowledge-based economy. A key characteristic of a knowledge-based economy is the high share of workers at the managerial, professional, or technical levels. These jobs have some of the highest average wages in the country. However, the prevalence of such jobs is minimal in the country. According to the International Labour Organisation (ILO), to be successful, such workers need a tertiary level education. 

How can Sri Lanka improve access to jobs for women and the youth?

Improving access to decent work for women and youth has been a policy challenge for Sri Lanka for a long time. Recent IPS research shows that only 8% of workers in the country are in decent work – that is, formal work that enables workers to earn minimum wages while doing legislated usual work. The share of female workers in decent work is lower – 7.6%. This general low prevalence of decent work is a major reason for low access to decent work for women.

In addition, traditional gender roles of Sri Lanka impose a higher burden of household and care responsibilities on women. This reduces their productivity at work and prevents them from taking up responsibilities that might interfere with their care responsibilities. Awareness programmes to change these traditional gender roles, and social and physical infrastructure to help families with work-life balance can also increase women’s access to decent work.

Some examples of these include affordable and reliable public transport that allows women to get to and from work easily and on time, and quality and affordable daycare and elderly care facilities that reduce care responsibilities.