The pandemic has dealt a severe economic blow to Sri Lanka, slashing the revenue streams of many businesses and leading to widespread wage cuts and redundancies, particularly among temporary workers. This column discusses key issues that need to be rectified in the country’s labor market policies to face similar emergencies in the future, and draws out the broader significance for developing countries – including the need for universal social insurance.
Businesses in Sri Lanka across a range of sectors – manufacturing, travel, and tourism – are experiencing catastrophic losses as a result of measures introduced in response to the pandemic that restrict business operations and the movement of workers.
A significant drop in economic activities and demand for goods and services will lead to more redundancies. The impact is more harshly felt by unprotected workers. Currently, more than 1.7 million temporary employees in the private sector are at risk of facing drastic wage cuts and layoffs.
The latest statistics from the Department of Census and Statistics (DCS) reveal that Sri Lanka’s unemployed population rose by 100,000 during the first quarter of 2020, coinciding with the start of lockdowns. There are likely to be more job losses in the coming months, while those who are unemployed will be desperate to find new jobs to survive in this time of uncertainty.
The precariousness of temporary employees
Like many other economies, Sri Lanka has experienced an expansion of precarious jobs in recent decades. Over the period from 2006 to 2018, three-quarters of wage employment created in the private sector consisted of recruitment for temporary jobs due to demand. The number of private sector temporary workers increased by around 400,000, while private sector permanent employees increased by only 130,000. Out of 2.8 million private sector wage employees, 60% were temporary workers.
Most temporary employees are not given any written contract. Although the law imposes an obligation to issue a letter of appointment, around 89% of temporary employees do not receive one. In the absence of documentation to establish employee-employer relationships, the rights of employees, such as terms and conditions of employment, compensation, etc., are hindered. As such, employers can dismiss or lay off workers, or recruit them on a short-term or ad hoc basis without much difficulty.
In addition, the majority of temporary workers do not benefit from social security schemes. The Employees’ Provident Fund (EPF), the social security scheme for private sector employees, covers any employee irrespective of whether they are permanent, temporary, casual, or shift workers. But data reveal that among private sector temporary workers, only 12% are covered. Such gaps in social protection coverage add to the financial vulnerability of workers during a disaster.
Ways to respond to labor market challenges
Expansion of precarious employment
Institute of Policy Studies research finds that there are two key reasons for the increasing trends in temporary forms of employment in Sri Lanka. One issue is related to labor supply-side factors, such as less educated, unskilled workers; the other issue relates to new labor market entrants. In combination, these factors have meant that more workers are likely to be engaged in temporary forms of employment.
In addition, as in many other countries, Sri Lanka experiences exploitation of labor through the recruitment of temporary workers to fill permanent job needs, while denying them permanent employee rights. As such, it is important to have regulatory mechanisms to protect the rights of temporary workers, including equality of employment conditions, social protection, etc. As a first step, issuance of letters of employment to all temporary employees should be made compulsory for companies that use such hired labor.
Routes to more and better jobs
Excessively restrictive legislation can also discourage formal job creation, and fail to provide real protection, as employers find loopholes and ways around the rules. For example, Sri Lanka does not permit a ‘hire and fire’ policy as used by employers in many other countries. According to Doing Business 2019, the severance pay for redundancy dismissal in Sri Lanka is the fourth highest in the world. In this context, employers make use of gaps in legislation to evade rigid employment security policies.
In addition, Sri Lanka does not have an unemployment insurance scheme and its active labor market policies are generally weak. The country is constrained by limited financial resources and the lack of an adequate administrative framework to govern enterprises and implement unemployment insurance. Although unemployment insurance was proposed in 2003, a lack of agreement on financing between employees, employers, and the government has held it back.
More legislation alone will not work, as it will make it difficult to attract private investment. The current crisis shows the importance of increasing the flexibility of the labor market and the need to move towards income protection, rather than job protection. Therefore, multiple strategies are needed to combat the growth of temporary employment.
The government could facilitate permanent employment in the private sector by introducing strategic protective measures to safeguard workers’ rights and benefits, such as unemployment insurance and universal pension schemes. This is an essential step towards promoting decent work and supporting a transition from the informal economy to the formal economy, as well as a job-rich recovery in Sri Lanka.
The role of social protection to face emergencies
There are vast gaps in the country’s social protection system for informal workers, including daily wage earners, the self-employed, and migrant workers. With the current social security system, only 29% of the total employed benefit from employment-based, social protection schemes. Sri Lanka faces challenges in meeting the social security needs of a large and growing informal sector.
The pandemic has been a wake-up call for the country, revealing serious gaps in its social protection systems. Evidence from previous crises shows that countries that have effective social protection systems are better prepared for a crisis. It is necessary to ensure adequate social protection coverage for all informal workers – temporary, daily waged, and self-employed workers. Such a social insurance scheme would safeguard those who have lost their livelihoods in a crisis.