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The Sri Lankan Unemployment Problem Revisited

  • MartÌn Rama

High unemployment in Sri Lanka has been attributed to unrealistic expectations, to queuing for public sector jobs, and to stringent job security regulations. However, the empirical evidence supporting these explanations is weak. This paper analyzes individual records from the 1995 Labor Force Survey, and time series for wages in the formal and informal sectors of the economy. The paper rejects the unrealistic-expectations hypothesis by comparing the impact of education on the actual wages of those who have a job and on the lowest acceptable wages of the unemployed. But it finds substantial rents associated with jobs in the public sector, and in 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 suggests that many among the unemployed are waiting for "good" job openings, but are not interested in readily available "bad" jobs. Copyright Blackwell Publishing Ltd 2003.

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Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 7 (2003)
Issue (Month): 3 (08)
Pages: 510-525

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Handle: RePEc:bla:rdevec:v:7:y:2003:i:3:p:510-525
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  1. Taye Mengistae, 1998. "Wage rates and job queues: does the public sector overpay in Ethiopia?," Economics Series Working Papers WPS/1998-20, University of Oxford, Department of Economics.
  2. 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.
  3. 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.
  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. Rama, Martin & DEC, 1994. "Flexibility in Sri Lanka's labor market," Policy Research Working Paper Series 1262, The World Bank.
  6. 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.
  7. 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.
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