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The Sri Lankan unemployment problem revisited

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  • Rama, Martin

Abstract

Sri Lanka's high unemployment rate has been attributed to a mismatch of skills, to queuing for public sector jobs, and to stringent job security regulations. But the empirical evidence supporting these explanations is weak. The author takes a fresh look at the country's unemployment problem, using individual records from the 1995 Labor Force Survey and time series for wages in the economy's formal and informal sectors. He assesses, and rejects, the skills mismatch hypothesis by comparing the impact of educational attainment on the actual wages of those who have a job with the effect on the lowest acceptable wages of the unemployed. However, he finds substantial rents associated with jobs in the public sector and in private sector activities protected by high tariffs or covered by job security regulations. A time-series analysis of the impact of unemployment on wage increases across sectors supports the hypothesis that most of the unemployed are waiting for"good"job openings but are not interested in readily available"bad"jobs. In short, unemployment in Sri Lanka is largely voluntary. The problem is not a shortage of jobs but the artificial gap between good and bad jobs. Policy efforts should be aimed at reducing the gap between good and bad jobs by making product markets more competitive, by reducing excessive job security, and by reforming government policies on pay and employment.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2227.

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Date of creation: 30 Nov 1999
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Handle: RePEc:wbk:wbrwps:2227

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Keywords: Labor Policies; Health Monitoring&Evaluation; Environmental Economics&Policies; Public Health Promotion; Labor Markets; Health Monitoring&Evaluation; Environmental Economics&Policies; Youth and Governance; Labor Markets; Economic Theory&Research;

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References

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  1. Rama, Martin & DEC, 1994. "Flexibility in Sri Lanka's labor market," Policy Research Working Paper Series 1262, The World Bank.
  2. Rama, Martin, 1998. "How Bad Is Unemployment in Tunisia? Assessing Labor Market Efficiency in a Developing Country," World Bank Research Observer, World Bank Group, vol. 13(1), pages 59-77, February.
  3. van der Gaag, Jacques & Vijverberg, Wim, 1988. "A Switching Regression Model for Wage Determinants in the Public and Private Sectors of a Developing Country," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 244-52, May.
  4. Terrell, Katherine, 1993. "Public-private wage differentials in Haiti Do public servants earn a rent?," Journal of Development Economics, Elsevier, vol. 42(2), pages 293-314, December.
  5. Taye Mengistae, 1998. "Wage rates and job queues: does the public sector overpay in Ethiopia?," CSAE Working Paper Series 1998-20, Centre for the Study of African Economies, University of Oxford.
  6. Assaad, Ragui, 1997. "The Effects of Public Sector Hiring and Compensation Policies on the Egyptian Labor Market," World Bank Economic Review, World Bank Group, vol. 11(1), pages 85-118, January.
  7. William T. Dickens & Kevin Lang, 1991. "An Analysis of the Nature of Unemployment in Sri Lanka," NBER Working Papers 3777, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Deininger, Klaus & Jin, Songqing & Sur, Mona, 2007. "Sri Lanka's Rural Non-Farm Economy: Removing Constraints to Pro-Poor Growth," World Development, Elsevier, vol. 35(12), pages 2056-2078, December.
  2. Aysit Tansel & H. Mehmet Tasci, 2009. "Hazard Analysis of Unemployment Duration by Gender in a Developing Country: The Case of Turkey," ERC Working Papers 0903, ERC - Economic Research Center, Middle East Technical University, revised Oct 2009.
  3. Fatma El-Hamidi, 2006. "Why Does the MENA Region Have Such High Unemployment Rates?," Working Papers 270, University of Pittsburgh, Department of Economics, revised Sep 2006.
  4. Pieter Serneels, 2004. "The Nature of Unemployment in Urban Ethiopia," Economics Series Working Papers WPS/2004-01, University of Oxford, Department of Economics.
  5. Martin Godfrey, 2003. "Youth employment policy in developing and transition countries - preventionas well as cure," Social Protection Discussion Papers 27875, The World Bank.
  6. Dileni Gunewardena & Darshi Abeyrathna & Amalie Ellagala & Kamani Rajakaruna & Shobana Rajendran, 2008. "Glass Ceilings, Sticky Floors or Sticky Doors? A Quantile Regression Approach to Exploring Gender Wage Gaps in Sri Lanka," Working Papers PMMA 2008-04, PEP-PMMA.
  7. Pieter Serneels, 2002. "Explaining Non-Negative Duration Dependence Among the Unemployed," Economics Series Working Papers WPS/2002-13, University of Oxford, Department of Economics.
  8. Giulia Lamattina, 2008. "Conflict Migration and Social Networks: Empirical Evidence from Sri Lanka," Rivista di Politica Economica, SIPI Spa, vol. 98(6), pages 161-194, November-.
  9. Gunewardena, Dileni, 2004. "Improving poverty measurement in Sri Lanka," MPRA Paper 7695, University Library of Munich, Germany, revised May 2005.
  10. Pieter Serneels, 2002. "The Added Worker Effect and Intrahousehold Aspects of Unemployment," Economics Series Working Papers WPS/2002-14, University of Oxford, Department of Economics.
  11. Ajwad, Mohamed Ihsan & Kurukulasuriya, Pradeep, 2002. "Ethnic and gender wagedisparities in Sri Lanka," Policy Research Working Paper Series 2859, The World Bank.
  12. World Bank, 2007. "Sri Lanka - Poverty Assessment : Engendering Growth with Equity, Opportunities and Challenges," World Bank Other Operational Studies 8050, The World Bank.
  13. McCormick, Barry & Wahba, Jackline, 2003. "Did public wage premiums fuel agglomeration in LDCs?," Journal of Development Economics, Elsevier, vol. 70(2), pages 349-379, April.

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