COVID-19 and labour shifts

Caught up in COVID-19 Sri Lanka is seeing shifts in its labour force that could have deep implications on its growth prospects. As jobs in the manufacturing and services sectors shrink, more and more people are finding jobs in the agriculture sector, which is positive but overall it is an area that only contributes about 7% of GDP despite having a disproportionately high 27% of the workforce.  

Sri Lanka added more workers to the agriculture sector during the April-June (2Q) period amid the urgent need to ensure food security and to bring in much foreign exchange as possible to the economy beset by the pandemic.  

According to the latest Census and Statistics Department data, 32,397 new jobs were added to the broader agricultural sector, which includes forestry and fishery, during 2Q, taking the total employed in the sector to 2,159,609 or 27.1% of the total employed persons in Sri Lanka.  

With job gains in 2Q, the total employed in the agriculture sector has increased by 168,717 persons from a year ago, at which time the total employed in the sector was about 1,990,892 persons with a 24.2% share of the total employed. 

This helped partially offset the job losses in other two sectors of the economy – industrial and services – during 2Q, bringing down the total jobless rate in the country to 5.4% by end-June from 5.7% end-March. This shift may also have been aided by the nationwide curfew that encouraged more people to return to their homes outside of the Western Province. 

The industrial sector lost 27,286 jobs while the services sector lost 48,558 jobs in 2Q. The job gains in the agriculture sector could be attributed to the strong government patronage extended towards it by way of subsidies, financial assistance, knowledge transfers, market linkages and guaranteed prices. This provided fresh options to workers returning home. 

These measures were deployed swiftly with the dual aim of strengthening the rural economy while building a robust food base within the country, as well to earn higher foreign exchange income from exporting the excess agricultural produce. 

But unemployment remained elevated from the December 2019 levels when there were 411,318 persons without jobs with a jobless rate of 4.8%. A jobless rate of 4% or below is typically considered as peak employment or near full employment in an economy.  Sri Lanka’s total employed population remains still below the levels seen end of last year. 

The total employed persons in all three sectors of the economy was 7,977,000 by end-June, compared to 8,181,442 at the beginning of the year, and 8,203,018 a year ago. This may not seem like a major difference but policy makers need to be aware that agriculture’s comparatively low productivity means that productivity losses and income inequality could be inevitable if this shift is allowed to grow. With low technology infusion into agriculture, the foreign exchange it can earn is also limited, and Sri Lanka is in dire need of strong exports given its macroeconomic situation and looming debt repayments next year. 

There is also the additional danger that if COVID-19 impact becomes more serious then the Government will have to fork out more allowances and support, which it simply does not have the fiscal space to do anymore. Reversing employment away from agriculture into manufacturing and services will be essential to guide the economy back to recovery.