Slump in employment enters 4Q as people lose jobs amid shrinking economy

• Loss of prime age working population to migration could deprive country of key skills required to reboot growth 

The ongoing economic crisis is continuing to make more people jobless as the dire employment situation entered the fourth quarter this year reflecting the depth and breath of the crisis which is still unfolding.  

According to a monthly survey carried out by the Central Bank on broader economic activities, employment losses were recorded in in both manufacturing and services sectors, due to economic contractionary forces which have triggered mass migration.  

As the economy fell off a cliff early this year firing runaway inflation and shortages in many commodities, the authorities were compelled to take some tight measures to squeeze demand by way of raising interest rates and taxes to levels not seen in decades. 

As a result, while the businesses were forced to either scale down their operations or shut down completely, they had to let their employees go, resulting in record number of layoffs since the beginning of the year.

The official jobless data available only through the second quarter of the year showed 4.6 percent unemployment rate, up from 4.3 percent in the first quarter. However, the jobless rate masks the true nature of the people who are without jobs as it doesn’t take into consideration those who did not seek employment during the survey period.

Meanwhile, the labour force participation rate, a much better indicator of employment conditions compared to the jobless rate despite its flaws and measured using the number of people who are both employed and unemployed but looking for work as a share of the working age population, fell to 50.1 percent in the second quarter from 51.2 percent in the first, reflecting the country’s shrinking labour force. 

While the pandemic in 2020 and 2021 took much toll on the jobs across many industries, particularly in sectors which required close proximity to people such as hospitality, restaurants, entertainment and beauty culture et al. the subsequent economic crisis which began to unfold in early 2022 had a massive impact on people’s jobs and livelihoods across almost all sectors. 

Layoffs, lack of local opportunities and higher cost of living crisis prompted many people, including those who are already employed, to migrate for leaving behind the deplorable living conditions back in Sri Lanka. 

According to the Central Bank, many who responded to the survey had cited, “a notable decline in demand amidst the deteriorating purchasing power of the consumers,” while the export-oriented firms are experiencing a slowdown in demand for goods and services from their customers due to record high inflation in those markets and the economic slowdown caused by the Central Bank actions to combat inflation. This was seen from the textiles and garments exports earnings which fell by a little over 13 percent in October, pulling down the entire earnings for the month, breaking the months-long rise in export earnings since March this year. The apparel sector respondents to the survey in particular have cited the slowing demand in their North American and European markets. Meanwhile, the services sector has continued to see decline in employment as the sector is losing people via migration, resignations and retirement. Meanwhile, most service businesses have frozen their hiring due to lack of growth in the sector. 

The Sri Lankan economy is estimated to shrink by between 8 to 9 percent in 2022, declining the most in its post-independent history.