Lanka Citizen

point of view

By the Economist

The 2004 Annual Report of the Central Bank of Sri Lanka says the total number of employees in state institutions amount to 1,094,415. Since 1990 the number of public sector employees has increased almost by 50 per cent. Isn`t it strange that Sri Lanka was one of the first developing countries to implement economic liberalization policies yet it has the largest bureaucracy per capita in the region’ The Sri Lanka: Development Policy Review of the World Bank highlights this point and goes on to show that the government (including semi-government institutions) recruit close to 18 per cent of the labour force in the country.

Why is the government sector employment so large ‘

One reason why the government sector has become large is due to the North/East problem. First, as a solution to the problem the Indo-Sri Lanka Political Accord was signed and with it came the 13th Amendment to the Constitution. This led to the creation of the Provincial Council (PC) system for devolution of power. The PCs have generated an additional layer of a bureaucracy amounting to nearly 300,000 personnel and they serve little purpose in terms of enhancing productivity and efficiency in the economy. Needless to say, there is a large amount of duplication and overlapping of functions between the central government and the PCs. Second, there has been a substantial increase in the armed forces with the escalation of the North/East crisis during the 1983-2001 period ‘ the forces have almost doubled in size since the early 1980s. These two areas have substantially contributed to the large government sector employment and they account for between 500,000 ‘ 600,000 workers. The other factors that contributed to the growth of employment are: (1) ineffectiveness of the Voluntary Retrenchment Schemes introduced to trim down state sector employment; (2) regular large scale public sector employment made by politicians during election times.

Public sector is not very efficient not because it is inherently so as some people seem to think but due to political interference of public sector activities. Public enterprises/corporations become easy prey when politicians want to find jobs for their supporters. Many such recruits make the enterprises overstaffed and the new recruits most often prove to be redundant with the passage of time. In recent years with more and more computerization of the functions of public enterprises/corporations, the redundant workers have increased and one only needs to visit government institutions to observe the number of workers idling and just waiting for time to pass by.

When Sri Lanka has a bloated public sector who`s productivity is questionable why did the government decided to provide jobs for approximately 40,000 graduates in the public sector’ The answer to the question is not simple and straightforward. We have to examine the characteristics of the labour market and the type of unemployment to provide a meaningful answer.

Job Market and the Unemployment Problem

Although unemployment has declined during the 1990s, still it hovers around 8 per cent of the labour force. There are a number of characteristics in the Sri Lankan labour market that act as impediments for more employment creation. Among others, three hypotheses have been put forward to explain unemployment in Sri Lanka. First, the skill mismatch hypothesis which argues that the type of skills produced by the Sri Lankan education system is not suitable for the job market. Dudley Seers in his 1971 report for the ILO used this explanation to describe unemployment in Sri Lanka during that time. Second, is the job queuing hypothesis which argues that Sri Lanka`s unemployment is voluntary because youth wait for `good` jobs and in the meanwhile depend on family income. Third, it is argued that unemployment is due to the rigidities in the labour market resulting from outdated labour legislation. Such legislation prevents smooth labour exit. It is argued that due to this factor it is difficult for firms to expand in a labour intensive manner and thus create new employment.

All three explanations, among others, have some validity although the World Bank seems to think that most of the unemployment in Sri Lanka is voluntary. It is argued that most of the unemployed are waiting for `good` jobs openings but are not interested in the readily available `bad` jobs. There are many `bad` jobs available in the market ‘ about 15,000 vacancies in the garment industry, shortage of rubber tappers, and so on. The problem it is argued is not the shortage of jobs but the gap between `good` and `bad` jobs.

The World Bank goes on to argue that this gap is enhanced by the frequent waves of public sector employment by the governments in office. Public sector jobs have a traditional appeal and at the lower level it is argued that they are attractive (`good`) than similar jobs in the private sector and it is the key factor that contributes to queuing for `good` jobs. Accordingly, successive governments were advised by the World Bank to stop recruiting people to the public sector to halt voluntary unemployment and allow the market to determine the jobs. Thus, a universal freeze on public sector recruitment was put into effect in 2002 by Management Circular No. 16(1) of October. It was aimed at not only addressing the voluntary unemployment problem but also to improve the efficiency of the public enterprises/corporations.

The assumption underlying this policy was that the new entrants to the labour force will be absorbed by the growing private sector activities through the deregulation measures in the rest of the economy. This in turn will create a better balance between `good` and `bad` jobs and to a great extend solve the unemployment problem. Did this happen during the past’ The private sector as usual was on the `wait and see` mode and the graduates that the Universities were churning out were waiting at home for `good` jobs from the private sector. The call never came. The graduates took refuge in extreme political doctrines and became a disruptive force in the society.

Jobs for Graduates from the Private Sector ‘

Market liberalization and social culture needs examination in the context of jobs for graduates from the private sector. Social culture could be defined as patterns of behaviour in society at large or of selected groups in society. Sri Lankan private establishments exclusively employ the English language as a medium for conducting business regardless of the official status of Sinhalese/Tamil. The Sri Lankan business community promotes the idea of `indispensability of English for success in life` in the globalized world. A business culture centred around the English language has led to an exclusion of a large segment of society from the development process. Moreover, the recent privatization has also raised the question of language: namely the place of English in society. State run organizations, upon being privatized, have made redundant thousands already employed in the official languages.

With the private sector setting the field of employment at the expense of the Sinhala/Tamil employing state organs, the political system was under severe pressure from the frustrated masses ‘ educated for so long in Sinhalese/Tamil and awaiting employment, upon being shown the door on the grounds of non-eligibility. The Sinhalese youth insurgency of 1971 and 1988/89 and the Tamil separatist struggle of late 1970s and thereafter were responses to such frustrations. The irony here is the inconsistency of the policy of education with that of changing economics. They are not designed to meet at any point in harmony to integrate for producing desired results.

Clearly the need to refrain from creating more public sector jobs is obvious, but then for this to happen the private sector should not only immediately create jobs but should be willing to absorb the vernacular educated graduates. When the private sector is in its usual `wait and see` mode and keeps its distance from the non-English speaking graduates the problem of graduate unemployment will remain.

The Problem at Stake

It is not prudent to depend too much on the private sector to create the required jobs until certain conditions are fulfilled. First, until the North/East problem is fully settled the `wait and see` attitude of the private sector will prevail and most private investments will be short to medium term oriented which would not generate large scale jobs. Second, as long as stringent labour legislations are in operation the private sector will resort to less labour intensive techniques for more efficiency.

The government finds it difficult to tell the unemployed graduates to wait till the private sector expands and generate jobs in the long run. Keynes said that `in the long run we are all dead` thus something needs to be done soon. A two-pronged approach is thus required by the government to address this problem. Education reform should be expedited so that all graduates are trained either to be employable in whatever language or trained in the English language, and secondly labour market reforms should be expedited. Without engaging in addressing these two areas, the forces of deregulation/liberalization in other areas of the economy will find it difficult to create the required jobs in the market.

The solution to the problem is thus not straightforward. Attitude is a key problem ‘ most businesses think that Arts graduates are useless because they do not know English (few businesses have absorbed a small number of graduates under the `Taruna Aruna`programme). The private sector should realize that unemployment could be a disruptive force and shake business if they do not have jobs and idle for too long. No amount of criticism of the public sector recruitments will be taken notice by the politicians as long as the deep seated issues are not addressed when the unemployed graduates grow in number. While the government immediately takes steps for education and labour reform, the private sector should seriously consider absorbing a few graduates every year ‘ if not under the normal recruitment at least under their Corporate Social Responsibility ‘ as a first step towards addressing the problem. A deep-seated problem requires multidimensional solutions and the private sector should be a partner in this process.

Courtesy: Sunday Island, 2005/10/23

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