Thursday Oct 22, 2026
Thursday Oct 22, 2026
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IPS Research Fellow
Dr. Pulasthi Amarasinghe
-Pic by Ruwan Walpola
Sri Lanka’s return to pre-crisis unemployment levels is a misleading measure of recovery, the Institute of Policy Studies (IPS) said. Economic stabilisation has not delivered a comparable recovery in well-paid, productive and stable jobs, it said.
IPS Research Fellow
Dr. Pulasthi Amarasinghe presented the findings at a roundtable on Tuesday (20),on the IPS flagship report, Sri Lanka State of the Economy 2026. The report covers labour in two chapters: one on employment, wages and productivity, and one on informality and resilience.
The unemployment rate returned to its 2019 level of 4.4% in 2024. Over the same five years, however, labour force participation fell by about 5%, and the employment-to-population ratio fell by about 4.5%. The 2025 survey shows some recovery, but both remain well below 2019 levels. Real earnings of salaried workers were also lower in 2024 than in 2019.
Dr. Amarasinghe said workers had absorbed much of the economic crisis through lower real wages and the loss of purchasing power from inflation. Around 300,000 workers left the country in 2022, which he said signalled a lack of employment opportunities at home.
The productivity data points to a structural problem. Labour productivity can rise in two ways: through gains within sectors, or through workers moving into higher-output sectors. Between 2019 and 2024, productivity improved within sectors, but the employment mix shifted the wrong way. As a result, aggregate labour productivity fell by 0.5%.
“You may think this is a low number, but given that this is five years and we don’t see a positive change in labour productivity, that is quite detrimental to any sort of economic activity,” Dr. Amarasinghe said. Workers’ ability to move into more productive sectors was limited, he added.
The recovery has also been uneven across groups. Female labour force participation fell from 34.5% in 2019 to 29.8% in 2024. Youth unemployment remains at 22%, which a recent International Monetary Fund report ranked among the highest in Asia. The share of A-level or higher qualified workers in [occupation category] rose from 32.8% to 34.9%, which Dr. Amarasinghe said pointed to underemployment and skills mismatch.
He said skills policy must respond to actual vacancies, but warned that “training and skill development alone won’t be enough if the jobs simply aren’t there”.
Informality compounds the problem. In 2024, 66.5% of the employed, or about 5.3 million workers, were in informal work. Formal wage employees earned an average of Rs. 63,000 a month, compared with Rs. 35,000 for informal wage employees. Informal workers also have no access to employment-based protection.
Dr. Amarasinghe gave the example of the roughly two million agriculture and fisheries workers exposed to climate risks. After Cyclone Ditwah, agricultural compensation went to those owning farmland. A significant number of agricultural workers who farm rented land did not receive the same protection.
Barriers to formalisation go beyond enforcement. Of informal wage employees, 59% work in [establishments] with fewer than five regular workers, which limits their scope to grow. Ninety percent have no written contract. Compliance costs, weak demand and the volume of regulation add further obstacles.
The IPS set out three linked priorities. The first is better skills matching, through training, vacancy information and programs aligned with demand. The second is an enabling environment for formal employment, through more efficient regulation and simpler registration. The third is stronger income security, through real wage protection, social security for informal workers and affordable employment benefits.
Dr. Amarasinghe said the three depend on each other. Skills earn no return without vacancies. Firms struggle to grow without formal employment. Without income security, workers find it too risky to move between jobs. “We simply need productive jobs, better earnings and income protection to advance together,” he said.
