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Prepared by:

D.M.Sanath Dasanayaka (sanath.dasanayaka@outlook.com)

University of Sabaragamuwa, Sri Lanka

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Content

1. Introduction

2. Literature Review

3. Labor Unemployment

4. Types of Unemployment

5. Cost of Unemployment

6. Current Situation in Sri Lanka

7. Reasons for Unemployment in Sri Lanka

8. Suggestions

9. References

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1. Introduction

Labor unemployment is a very vital factor in any economy in any scale and it makes a great

impact on the performance of an economy. As many critical economic factors are considered,

such as inflation, economic growth, per capita income; labor unemployment is so important

because it has many economic, social, political and psychological impacts. Currently, labor

unemployment has become a severe issue in many counties in the world. In the USA, the

unemployment rate is7.7% and in many other South Asian countries, it takes a higher rate but in

Sri Lanka, it’s 4.2% in 2012. Moreover labor unemployment has a direct effect on the economic

growth of an economy. The relationship between unemployment and economic growth is

explained in okun’ law. It says when every 1% increase in unemployment rate in an economy

will affect to decrease its GDP by 2% relatively the potential GDP.

In this report, the aim is to give a clear idea of labor unemployment, what unemployment rate is,

types of unemployment, its economic consequences (The costs of unemployment), the current

situation of Sri Lanka in labor unemployment , reasons for unemployment, fluctuations in

unemployment rate in Sri Lanka as well as proposals for coping against unemployment and

obtaining better results.

Specifically, this report is prepared regarding the facts in Sri Lanka. For the purpose of preparing

this report, some research papers have been studied. It’s believed that both specific theoretical as

well as practical knowledge can be skimmed through the report.

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2. Literature Review

1. The Sri Lankan unemployment problem revisited, Martin Rama, World Bank, Research

Development Group.

The study takes a look at the unemployment problem using individual records from the 1995

in the formal and informal sectors of the economy. It assesses the skill mismatch in the labor

market.

Findings:

Private sector activities are protected by high tariffs or covered by job security

regulations.

Unemployment in Sri Lanka to a large extend is voluntary. The bulk of unemployed

are young, relatively educated individuals who live with their parents and benefit

from family support to perform an extended job search. The goal is to find not a job,

but a relatively good job.

2. Employment and Unemployment in Sri Lanka- Trends, issues, and Options, A.G.W.

Nanayakkara, Director General, Department of Census and Statistics, Sri Lanka.

Findings:

The aim is to analyze the past trends in employment and unemployment during the

last four decades and it’s based on the data collected by Department of Census and

Statistics.

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3. Education and Employment, Sri Lanka at the crossroads, Prof. Lal Balasuria and Dr.

Rees Hughes.

Findings:

The relationship between the education system and the labor market and the

solutions are mainly based upon a unique blend of history, tradition, economy and

available resources.

The difference between the current study & three other studies is, in the current study, especially,

the concentration is on the study of present unemployment situation & reasons for fluctuations in

the unemployment rate and Suggestions to achieve a lower unemployment rate. Moreover, to

bring the underemployment level down.

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3. Labor Unemployment

Labor force mainly consists of the employed and the unemployed. Here the employed means

people perform any paid work as well as those who have jobs but are absent from work because

of illness, strike or vacation. The unemployed group includes people who are not employed but

are actively looking for work or waiting to return to work. To be counted as unemployed, a

person must take specific efforts to find out a job (such as having a job interview).

Unemployment Rate:

It’s the percentage of the labor force that is unemployed. It’s measured as a percentage of

unemployed workers from total labor force.

Unemployment in a graph:

Figure: 01

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4. Types of Unemployment

Economists have found unemployment consists of three broader types: frictional unemployment,

structural unemployment, and cyclical unemployment. It’s considered that each type of

unemployment has different causes and gives different social and economic costs.

1. Frictional Unemployment

This type arises because of the ongoing movements of people between regions jobs or through

different stages of life cycle.

Because frictionally unemployed are often moving between jobs or looking for better

opportunities, it’s often thought that they are voluntary unemployed

2. Structural Unemployment

It’s the mismatch between the supply of and demand for workers. Mismatches can occur because

the demand for one kind goes up while the demand for other kind goes down and supply doesn’t

quickly adjust.

3. Cyclical Unemployment

It exists when overall demand for labor is low. As total spending and output falls, unemployment

rises virtually everywhere. Mainly cyclical unemployment occurs when employment falls as a

result of an imbalance between aggregate demand and supply.

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5. Costs of Unemployment

There can be identified three types of costs of unemployment. They are as follows,

1. Economic costs

From the view point of Economics, the main cost of unemployment is the output that is lost to

the nation because labor force is not fully utilized. Here much of the burden of the lost output is

borne by the unemployed themselves. In this case, their income declines and the quality of skills

decreases because of lack of use. On the other hand, the unemployed stop paying taxes and the

government’s income tends to decrease sharply as well as the government has to start an

unemployment benefits programmes.

2. Psychological Costs

Studies show that lengthy period of unemployment lead to loss of self-esteem, feelings of loss of

control over one’s life, depression, and even suicidal behavior. The unemployed and their

families feel increased psychological stress that is caused by economic difficulties because of the

loss of income.

3. Social costs

Social costs of unemployment are caused as results of economic and psychological effects.

People who are unemployed for a long period of time tend to face not only severe but also to feel

anger, frustration, and despair. Increases in is associated with increases in crime domestic

violence, alcoholism, drug abuse, and many other social issues. Generally, the costs of

unemployment are borne not only by the unemployed but also by the whole society.

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6. The Current Situation in Sri Lanka

Unemployment Rate (Unemployed as a percentage of Labor Force)

Description 2008 2009 2010 2011

All 05.4 05.8 04.9 04.2

By Gender

Male

Female

03.7

08.4

04.3

08.6

03.5

07.7

02.7

06.8

By Age

15-19

20-29

30-39

40 & above

20.8

13.7

03.1

01.2

20.9

15.4

03.7

01.4

20.3

13.8

03.1

01.0

15.4

12.4

02.7

00.7

By Education Level

Grade 05-09/Year 06-10

GCE (O/L)NCGE

GCE(A/L)HNCB & above

04.5

07.8

10.5

05.0

08.5

11.2

03.6

06.9

11.6

03.3

05.2

09.0

Source: Department of Census and Statistics Table: 01

Special Implications:

A higher rate of unemployment appears in female, because female find it’s difficult to

live far away from their places of residence for a long period of time or travel a long

distance for employment opportunities.

Unemployment Rate is higher in the age group of 15-19. After O/L many teenagers tend

to follow the higher education rather than doing job.

Comparatively in educational levels people who are between GCE (O/L) & GCE (A/L)

represent a high unemployment level. That condition has been occurred since skill

mismatch, educated youths look more attractive jobs in formal sector, insufficient job

opportunities in private sector.

The highest Unemployment Rate shows in the education level above GCE (A/L) &

beyond that. Discovered reasons for that are inadequate knowledge of English among

graduates, incorrect attitudes of universities, radical attitudes of graduates.

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The Unemployment Rate of the age group 15-19 has been declined, because government

is providing technical training through Technical Colleges so that youths can get a better

job or to begin his/her own employment.

Recent Unemployment Rate tends to decline sharply, there are many reasons affected on that

decrease.

Higher Economic Growth:

Recently The Economic Growth Rate of Sri Lanka is increasing. With the high Economic

Growth, the utilization of resources goes up & living standards become better.

End of the war:

With the end of the war of 30 years, agricultural, industrial & service sectors have

become wider & Labor Employment Rate has gone up. As well as there are many

employment opportunities for people in Northern & Eastern provinces.

Expansion of public service:

Current Government has provided many employment Opportunities for graduates in

public service. It has affected to reduce the Unemployment Rate in the educational level

of the group above GCE (A/L).

Mahinda Chinthana policy:

Under Mahinda Chinthana policy agricultural, industrial & service sectors have been

provided many benefits so that the labor employment in those sectors to be increased.

Fertilizer subsidies & production subsidies can be identified as examples.

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7. Reasons for Unemployment in Sri Lanka

According to the studies, which have been carried out by many experts Sri Lankas’

unemployment prevails because of the below reasons

Skills mismatch: It means the skills which have been learnt in academic courses differ

from the skills expected by private organizations. As well as learnt skills and

competences are not sufficient in real industrial world. Because of above reasons many

youths find it’s difficult to get a job in a private organization.

Inadequate knowledge of English: this has been discovered as a major reason for

unemployment in Sri Lanka. In many educational levels, English knowledge of students

is being in a lower level. With the globalization English language has become a major

fact for communication. When getting a job in private sector it is being critically tested.

Insufficient job training: this is another issue. Job training has been identified as a

crucial factor in success of any employment. When potential employees have not

obtained proper job training, companies will have to bear an additional cost on training. It

is a more critical factor in unemployment.

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8. Suggestions

Rehabilitations in education system:

Job oriented education.

Development of soft skills.

Granting university admissions for courses which will have a higher demand in the

market (Medicine, Engineering, and Bio-Science & Agricultural Science).

Expanding job training for university students.

Improving English knowledge in all educational levels.

Education based on children's abilities & interests (identifying their capabilities from

the 1st year to 5th year).

Social improvements:

Changing attitudes on private job opportunities (many persons think government job

opportunities are more valuable than private ones, because it has a pension scheme).

Career guidance.

Creating opportunities for self-employment.

Providing credit, marketing counseling services.

Economic improvements:

Achieving a higher economic growth rate.

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References

Balasooriya, L., Hughes, R., Education & Employment: Sri Lanka at the Crossroads.

Central Bank of Sri Lanka (2002), Economic & Social Statistics of Sri Lanka.

Frank, R., Bernanke, B., (2002), Principles of Economics, McGraw-Hill Irvin publishers, New

York.

Karunarathna, H.D., Structural Change & the Stage of Labor Market in Sri Lanka.

Nanayakkara, A.G.W., Employment & Unemployment in Sri Lanka-Trends, Issues & Options.

Ministry of Youth Affairs (2007), National Action Plan for Youth Employment.

Rama, M., the Sri Lankan Unemployment Problem Revisited, Development Research Group, the

World Bank

Rodrigo, C., Unemployment in Sri Lanka: Trends, Profiles & Issues.