Enhancing Employment Opportunities and Employability

1. Enhancing Employment Opportunities and Employability Nisha Arunatilake Institute of Policy Studies of Sri Lanka

2. Background • About a quarter of the Sri Lankan populationis poor • Moreover, a large number of Sri Lankans are vulnerable to income shocks due to: • (Individual) Sickness, disability, death and unemployment • (Community-wide) Droughts, floods, crop failure, and other natural disasters • Conflict • Sri Lanka has a rapidly ageing population • Share of 60+ population will double in the next 25 years (from 10% to 20%)

3. Background • Poor and the vulnerable groups who are most affected by inadequate and variable incomes include: • Informal sector workers in remote infrastructure poor areas • Children of these workers • Unemployed youth • Disabled • Elderly • Women

4. Background • Labour is the most important, often only asset of the poor • Effective policies for management of social risks include helping the poor and the vulnerable to get better returns to labour, through • job creation, • equitable access to jobs • Access to adequate training

5. Outline of presentation • Labour market trends and outcomes • Labour market institutions, focus on: • Employment protection legislation, • Wage setting, • Recruitment policies • Enhancing Labour supply • Education and training

6. Labour Market Trends and Outcomes • Labour force participation (LFP) • LFP stagnant, despite economic growth • 1994 to 2003 LF grew at 2.9%, mostly due to population increase • LFP varied across population groups • Male – 76%; Female – 35% • LFP low for young and old • LFP high for estate sector and rural sector

7. Labour Market Trends and Outcomes • Structure of employment • Remained constant 1997-2003 (LFS data) • Distribution of workers among public, formal private, informal private, own-account workers and unpaid family workers • Particularly, large share of informal sector (65%) has remained constant

8. Labour Market Trends and Outcomes • Unemployment rates • Declined (by almost half) over recent years • 16% in 1990 to 8.2% 4q2004 • But, remain high among • Women (13% compared to 6% for men) • Youth (UE highest for 15-19, 20-29 groups) • More educated (UER: A/L 18%; O/L 13%; below primary – below the national average)

9. Labour Market Trends and Outcomes • Real earnings • Increased (1992-2002) for all, except for estate sector • Average wages, 2003 • Public sector highest • private sector • Informal higher (high-end occupations) • Informal equal or less than formal (low-end occ.) • Other benefits for public and formal private sector • job security, paid holidays, paid sick and maternity leave, low effort levels

10. Labour Market Institutions • Job creation depend largely on overall growth and output • But, labour laws, unions, collective bargaining, core labour standards also affect job creation • Evaluate the impact of following: • Severance pay, • wage setting, • civil service hiring

11. Labour Market Institutions – Severance pay • Severance pay (TEWA- 1971 Act) • Firing costs of workers in SL very high relative to other countries • High compensation, discretionary, lengthy • Recent Amendments: reduced arbitrariness, but payments remain very high

12. Labour Market Institutions – severance pay • Severance pay – impacts • Job creation and job destruction flows, unusually low in SL compared to other countries • This, adversely affects productivity growth • Limit access to “good” jobs – by reducing job creation. • Particularly to: women, youth and elderly, informal sector workers

13. Labour Market Institutions- wage setting • Wage setting, three-tier structure • Public sector • periodic recommendations by gov., cost of living adjustments • Private sector formal • Tripartite wages boards (minimum wages via collective bargaining) • Private sector informal • market

14. Labour Market Institutions – wage setting • Wage setting – effects • Wage differentials between, public, formal private and informal sectors • Particularly lower level occupations • Women earn less than men • Largely due to discrimination, rather than productivity differences • Positive side – no evidence of ethnicity-based differences in earnings • Civil sector hiring policies • Govt. ad hoc recruitment policies • Patronage-based appointments (political)

15. Labour Market Institutions- impacts • Wage setting and civil service recruitments – Impacts • Unemployment due to: • Unrealistic wage expectations/ skills mismatch • Queuing for “good” jobs in the public sector • Low job creation in the private sector

16. Enhancing labour supply • Lack of equal opportunities push workers into the informal sector • Informal sector workers - • Are in communities with high unemployment rates • Reside in rural areas with poor-infrastructure (roads, electricity) • Are the poor with limited investments in health and education

17. Enhancing labour supply - Education • Low education and low job prospects reduces education prospects of children of informal sector workers • Reasons for School drop-outs due to • High direct costs (50% financial constrains) of schooling • Low perceived benefits (41% happy with level of schooling, 7% additional schooling not useful) • Poverty (17% work, 26% help at home) • Low quality of schools attended by the poor • poor returns to schooling Due to poor social networks

18. Enhancing labour supply- Education • Low intergenerational mobility due to vicious cycle of: • Limited education, location in rural areas • Reduce job prospects • Reduce school participation of children of informal sector workers

19. Enhancing labour supply - training • Moreover, informal sector workers in rural areas have little access to training • Factors positively affecting training • Parental schooling • Living in the Western Province • Schooling attainment

20. Summary • Labour Market Institutions and practices • Hindered job creation and raised returns to the privileged, • Adversely affected equity • Constrained restructuring capacity and investments of businesses • Contributed to unemployment and expansion of the informal sector

21. Summary • Limited education, location in poorer rural areas have • Created a group of low-educated workers with little prospects and hope • Reduced access to better paying jobs • Reduced expected returns to schooling • Reduced schooling participation of children • Increased poverty • Reduced access to good quality training

22. Policy Options • Encourage job creation through reducing job protection • Reducing the costs of termination • Reduce severance pay; Avoid double compensation (gratuity plus severance pay) • Allowing individual layoffs, without notifying the Commissioner – • Time saving • (no need given the generous severance pay) • (except in the case of large layoffs) At the same time improveworker protection …

23. Policy Options • Improve worker protection • Unemployment insurance, to overcome possible adverse effects of reduced job protection • Link UE insurance programs to micro finance and workfare • Ensure coverage of worker protection to the informal sector

24. Policy Options • Avoid direct government interventions on wage setting (except minimum wages) • In order to reduce the wage premium paid to formal sector workers • Reform civil service recruitment practices • That raise expectations, and influence unemployment • Promoting social dialogue • To facilitate the process of moving from job protection to worker protection

25. Policy Options • Improve access to education and training • Improve access to job training, assist job search, help start self-employment to vulnerable groups –(informal sector workers, unemployed,women, youth, disabled) • Direct programs to less covered regions • Other issues – • Improve relevance and quality of existing programs by linking them with industry • Improve affordability of better quality training programs through scholarships, student loans and voucher systems - Studies to identify best practices

26. Thank you