• Sri Lankans see real wages eroding by around 20% last year amid red-hot inflation

Sri Lanka’s unemployment moderated in 2022 amid the worst economic crisis the country ever faced since its independence when runaway inflation erased much of the real wages of the working population making them poor.

The annual bulletin on the labour force survey released by the Census and Statistics Department showed Sri Lanka’s official jobless rate easing to 4.7 percent in 2022 from 5.1 percent in 2021.

However, the jobless rate appeared to have masked the true labour market dynamics in Sri Lanka, which experienced the largest outflow of people for foreign employment last year on the back of the worsening economic conditions and social environment.

The conditions have now eased to a larger degree as the economic conditions are slowly improving with the decline in inflation and improvements in access to goods and services.

This is amid the sharp erosion in the real wages of the people in 2022.

The Annual Report of the Central Bank released yesterday showed the real wages of workers in the public, private and informal sectors had plunged by 20.6 percent, 22.7 percent and 17.5 percent respectively in 2022 as inflation peaked at slightly under 70 percent last year.   

Meanwhile, the labour force participation rate, a better gauge of the labour market dynamics, showed that it had consistently slipped below 50 percent levels.

In 2022, it further slipped to 49.8 percent from 49.9 percent in 2021 and 50.6 percent in 2020.

At its recent peak, Sri Lanka’s labour force participation rate stood at 54.1 percent in 2017.

The labour force participation rate measures the section of the workforce, who is either employed or unemployed but looking for work as a percentage of the working age population.

In developed economies, this remains steadily at above 60 percent levels reflecting how engaging their people are in the workforce despite some anomalies in the labour force during the pandemic.

Sri Lanka has comparatively low labour force participation rate as its female labour remains largely disengaged from the labour force while others, mostly who are in their prime working age, just idle without engaging in any meaningful work.

Besides these issues, Sri Lanka is also plagued with a severe productivity problem in its existing employed population, and this is apparent in the country’s bloated public sector which needs immediate reforms by way of cutting it down by more than half.