Demographic Transition and the Labor Market in Sri Lanka

Abstract

Sri Lanka's demographic transition
 has significantly shaped the age distribution of the labor
 force and created a large working age population (World Bank
 2008). Changing cohort sizes of young and old workers not
 only affect their own labor market outcomes (job quality,
 earnings), but also potentially affect growth prospects in
 the economy. Recovering from a 30-year conflict in the North
 and the East, Sri Lanka aims to accelerate growth in the
 medium term by substantially increasing investments. What
 will be the role of the labor market in delivering this
 growth? The service sector is expanding and accounts for
 nearly 60 percent of the Growth Domestic Product (GDP) and
 almost 40 percent of employment. However, only 56 percent of
 the working age population is employed, a result of low
 participation and high unemployment rates among women and
 youth. Any growth strategy will have to bring in more
 working age people, particularly women, into economic
 activity. The paper is organized as follows. The two
 sections that follow present an overview of the supply and
 demand side of the labor market. The next section discusses
 the ways in which the demographic transition could shape the
 labor market, particularly in terms of unemployment and
 earnings. This discussion is followed by three sections
 examining labor force participation and unemployment, job
 type, and earnings respectively. The last section concludes
 with some policy recommendations.