Jobless rate falls to 4.6% in 4Q; but could shoot up this year as recession risks loom 

Sri Lanka’s unemployment rate fell to 4.6 percent in the fourth quarter in 2021, down from 5.2 percent in the third quarter and the same level stood a year ago, but the official data hides the true nature of Sri Lanka’s chronic labour market problems, which could aggravate in 2022 with a recession looming. 

The official unemployment data gives the impression that the jobless rate which rose in 2020 with the pandemic induced lockdowns and economic malaise, was healing. 

However, there are hundreds of thousands who have either lost their jobs or decided to retire early due to the pandemic. They are unlikely to return to the job market forever. 

However, the current economic hardships, which have become worse since the beginning of 2022, could draw them back searching for work, but the question remains whether the economy is capable of generating jobs when the authorities are taking swift actions to slow down the economy with the single focus of bringing the inflation down.

 
However, the 2020-2022 inflation is largely caused by supply side constraints, which was exacerbated by another supply side shock brought about by the Russian invasion of Ukraine. 

What added to the woes was the expansive and prolonged lockdowns in Shanghai in China, where the Chinese authorities are scrambling to bring the virus under control causing the supply constraints to persist longer. 

While Sri Lanka’s jobless rate is at 4.6 percent, what really matters most is the very low labour force participation rate (LFPR).  Sri Lanka’s LFPR, which measures the number of people who are both employed and unemployed but are looking for work as a percentage of the working age population, was at 49.5 percent, unchanged from the third quarter but shrinking from 50.1 percent in 4Q of 2020. 

In the United States and Australia, the LFPR is at 63 percent and 66 percent, respectively.  The woefully low LFPR should send shivers through policymakers and other economic participants who are genuinely interested in a truly durable and sustainable economy with high incomes. 

Instead, Sri Lankan policymakers built an economy over the last three decades where over 1.5 million drive three wheelers and another 1.5 million engage in public service out of the 8.5 million labour force.  The Sri Lankan government provides Samurdhi welfare allowance to slightly over three million households out of a little over 5.0 million total households in the country, reflecting 60 percent poverty level in the economy.