Browsing by Author "Patabendige, A.J."

Now showing 1 - 6 of 6

Labour Market Distortions in Sri Lanka: Have they reduced under liberalised economic policies?
(Faculty of Graduate Studies, University of Kelaniya, 2005) Patabendige, A.J.
Labour Market Distortions in Sri Lanka: Have they reduced under liberalised economic policies?
(University of Kelaniya, 2005) Patabendige, A.J.
Studies such as Gupta (1989), Agarwala I 1983), and Little (1982), highlight that capital-Iabour ratios (technologies) are in fact sensitive to the relative cost of labour and capital. In this background, if the factor markets are distorted in favour of selecting capital intensive technologies, labour demand or the growth of employment is impeded. Agarwala’s (1983) study on ‘Price Distortion and Growth’ of 31 developing countries confirmed that as in the case of most of the developing countries Sri Lanka’s labour market was also highly distorted during the controlled era of the 1960s and the1970. Thus, those who highly emphasise labour market distortions promote exceedingly the case for economic reforms and labour market deregulation for developing countries to enhance their labour market ‘flexibility’ to bring about a positive effect on economic growth and speeding up of employment creation. Hence, in a background of implementing economic reforms with some changes in labour practices for more than two decades from 1 977 i n Sri Lanka, it requires to determine how far the cost of labour market distortions has decreased during the economic reform period. However, a debate over the cost of labour market distortions even after the economic reforms has emerged. Some are of the opinion that although the economy moved towards a free market following the 1977 economic policy changes the Sri Lankan labour market has not been reformed to be matched with the requirements of the open economy and remained distorted, imposing a higher labour cost to investors while others believe that Sri Lankan labour is more cheaper than most of the countries in the region. Meanwhile, starting from 2002, four key Acts on labour regulations such as the Factory Ordinance of 1942 (FO), the Termination of Employment of Workmen Act of 1971 (TEWA), The Industrial Dispute Act (IDA) of 1950 were amended with a view to increasing the labour market flexibility. In this setting, this paper aims at assessing how far Sri Lanka’s labour market distortions have reduced under the reform period mainly by comparing the Sri Lankan labour market regulations and behaviour with those of the neighbouring and some of the fast developing East Asian countries depending on the data availability for the period after 1977. This comparison is made on 1) minimum wage levels, 2) employment security legislations, 3) holidays and leave, 4) maternity benefits, and 5) industrial relations.Evidence gathered shows that contrary to the conventional wisdom the minimum wage regulations in Sri Lanka do not have a large positive impact on increasing employers’ costs of labour. But quite the opposite impact on the costs of labour could be seen arising from the regulations related to the employment security, contributions to social security programmes, and the private sector and the public sector holiday and leave. These regulations have a consider ably high positive effect on increasing employers’ non-wage labour costs in Sri Lanka. Also, 13 new major labour regulations relating to various aspects of working life have been enacted after 1977 and the cost of social security has increased during the reform period. Moreover, it has been found that more than anything else the highly deteriorated industrial relations system has damaged labour market flexibility in Sri Lanka and thereby imposed a huge cost to employers without showing any improvement of labour relations from the controlled era to be consistent with open economic policy regime. Consequently, the paper concludes that more than the other countries in the region the costs of labour market distortions in Sri Lanka have significantly increased during the reform period after 19771 resulting in a considerable retardation in the labour market demand .
Skills development through university education: are criticisms made by business leaders against the university education fair
(University of Kelaniya, 2007) Patabendige, A.J.
Skills Mismatch Hypothesis and its Relevance in Explaining the Current Unemployment in Sri Lanka
(University of Kelaniya, 2005) Patabendige, A.J.
Unemployment in Sri Lanka throughout the last few decades has been extremely high compared with those in most of the countries in the Asian region, which have been following open market policies similar to Sri Lanka. In analyzing the unemployment problem ‘skills mismatch’ hypothesis, first articulated by the ILO Mission to Sri Lanka in 1971, is still highly influential. Those who stress the orthodox view of the mismatch hypothesis believe implicitly that although the economy has employment opportunities, jobs expected by a large amount of job seekers are not adequately found or they do not fit into the prevailing jobs. Particularly the private sector business leaders ascribe this mismatch primarily to the weakness of the educational structure of the country. However, new evidence appears to believe that rigour of mismatch hypothesis has faded away. In this setting, this paper aims at challenging the majority view that mismatch is responsible rather than the lack of employment generation in the economy to appear a high level of unemployment in the country. The paper, mainly depending on various sources of secondary data, found that the mismatch hypothesis is still relevant in some areas. Accordingly: i) a high percentage of the unemployed desire employment in professional, technical and clerical occupations although in the current employment profile these three categories comprise only a lesser percentage of all the employed; ii) the analysis of the profile of expectation reveals that expectations for higher level jobs rise with increasing education; and iii) long-term unemployment is most conspicuous among those who have obtained higher educational qualifications. Contrary to the majority view, it is found that i) unemployment in all educational levels shows a considerable decline with nearly the same rates over the years; ii) the unemployment rate of females throughout the past period shows a faster declining; iii) the university education system, particularly in the last decade or so, has been geared to give more skills to graduates; and iv) the employment creation by the formal private sector as the engine for growth has not sufficient to catch up job loss in the public sector after 1990, and absorb new job seekers considerably to the formal economy. Consequently, the paper concludes that the strength of mismatch hypothesis has now considerably faded away, and failure to create a sufficient amount of employment by the private sector led economy is largely responsible for the current high unemployment level of the economy.
Socio-economic status of families of Sri Lankan workers overseas
(University of Kelaniya, 2011) Sanjeewa, P.D.P.; Patabendige, A.J.
Migration overseas for employment has been a rising trend over the last two decades, and it has become the highest net foreign exchange earner of the Sri Lankan economy in year 2009. Remittances are of major importance because it is at the intersection between migration and local household economy with their sheer volume, effect on household income, and contribution to financial asset building which improves quality of life. The remittances play a significant role in the economy and the social arena of Sri Lanka. The amount of money for consumption, savings and investments out of total remittance earned by the recipient contribute towards the stability and the growth of the economy which in turn decide the social aspects of those families. The study tries to investigate the social and economic status of worker remittance recipient families with the aim of analyzing relationships and potential causality links between worker remittances and other socio-economic indicators of those families. The study was conducted in over 156 households in Colombo, Trincomalee and Hambantota administrative districts of Sri Lanka. Households receiving remittances from European, Middle Eastern, Asian and other regions of the world were selected. Each district was considered as a cluster and the data was collected through an extended household survey. Results revealed that remittances have generated significant, long lasting improvements in wellbeing for many local households. It was revealed that considerable number of households suffer from Pseudo Riches Mentality in which they try to show off in society with luxurious type of living even when they are not financially stable nor the wealth sustainable. Failure of households to make a stable and lasting income source with remittances earned results in cyclic occurrence of the migrating leading to the continuation of vicious cycle of migration. The study concludes that the migration for employment and the receipt of worker remittances have shown a significant positive impact on the social and economic aspects of the local households. But in terms of productivity of investing money into business ventures and other purposes, drain of skilled and young workforce, households clinging to imports etc., the benefits due to foreign worker remittances and the contribution on the Balance of Payments of the country are not very promising.
Trends in Capital Intensity in the Manufacturing Industry in Sri Lanka and their Impact on Employment Generation
(University of Kelaniya, 2006) Patabendige, A.J.
considered much more capital-intensive than would be predicted on the basis of the knowledge of their factor endowments (Thirlwall, 2003). Accordingly, prevailing techniques of production in developing countries might be regarded as more capital intensive or inappropriate, and have exceedingly contributed to remain unemployment high in the countries like Sri Lanka. For example, one out of ten in the labour force is currently unemployed in Sri Lanka. Besides, Sri Lanka’s rate of unemployment remains at a higher level than most of the countries in the South and the South East Asian region which follow similar policies to those of Sri Lanka (WER, 2001). Stewart (1974) estimated that the appropriate capital stock per person in the United State was eight times that of Brazil, 20 times that of Sri Lanka, and over 45 times that of Nigeria and India. These figures show that capital intensity in the Sri Lankan industries was more than twice that of Nigeria and India in the early 1970s. Karunatilake (1987) reports that Sri Lanka’s public sector was 10 times more capital-intensive than the private sector in the 1970s. Five Year plan (1972-76) attributes unemployment at that time to a higher capital intensity maintained by the public and the private sectors. Such capital intensity is considered as a direct consequence of factor market distortions which were emerged as a result of following dirigiste policies for a long period of about 2 decades until 1977. Agarwala’s (1983) study on ‘Price Distortion and Growth’ of 31 developing countries confirmed the fact that the capital market was highly distorted in Sri Lanka in the 1970s. In this setting, the paper examines how far the rigor of distortions has been reduced by economic liberalization introduced from 1977 onwards to assess particularly the manufacturing industrial sector’s labour absorption and its strength to reduce unemployment in Sri Lanka. The study guided by the review of relevant literature (McKinnon, 1989; Kruger, 1983; Shaw, 1973) identified two major sources of capital market distortions, namely the practice of following a policy of controlled interest rates and maintaining overvalued exchange rates during an era of two decades from the late 1950s. In this setting, the study aimed at determining the impact of the 1977 economic reforms towards market liberalization on the reduction of the severity of these major sources of distortions. Based on this methodology the study estimated real interest rate behaviour and investigated into the behaviour of exchange rate for the reform period. Accordingly, the study found that in the controlled era before 1977, all deposit and lending rates remained at a very low level, resulting in negative real interest rates. This situation highly distorted capital market and made the price of capital (machinery) low, which resulted in increasing capital intensity in manufacturing and thereby limiting employment creation. However, after the adjustment of interest rates towards market rates as a part of the 1977 financial market reforms the real interest rate began to show positive values in most of the years in the ensuing period, except in few years. This phenomenon shows that rigor of capital market distortions arisen from negative real interest rates has reduced some what in the reform period. On the other hand, the real value of the domestic currency in relation to the major currencies with which Sri Lanka mostly transacts has changed over the period. During the controlled era before 1977 the rupee was comparatively overvalued against all the major currencies. After the major devaluations in 1977 and 1989 under the reforms, it reached a more real value. However, most of the other years the real value of the exchange rate started to appreciate, mainly on account of the government’s inability to preserve economic stability. As a whole, the study finds that the measures taken to liberalise the financial market from 1977 onwards have become somewhat effective in making real interest rates positive for most of the years, and supportive to reduce capital intensity to a certain extent in the reform period. But quite contrary to this, the appreciation in real exchange rate in most of the years during the reform period largely limited the success arisen from financial market liberalization to reduce capital intensity. Thus, the study concludes that overvalued real exchange rates in most of the years and having negative real interest rates in some years in the reform period have not contributed considerably to reduce capital intensity which made the importation of machinery and capital equipment still cheaper, and by this means labour absorption has been retarded, particularly in the manufacturing industrial sector even after the 1977 economic reforms.