Unemployment in 2Q down from last year

By Chandeepa Wettasinghe 
Sri Lanka’s unemployment rate in the second quarter of 2017 (2Q17) fell to 4.5 percent from 4.6 percent in the corresponding quarter last year (2Q16), according to the country’s statistics office.
The survey estimated that 261,276 new jobs were created during the 12-month period.

During this period, the national prices of goods and services, as measured by the National Consumer Price Index (NCPI), increased significantly at high single digits.

Such a negative relationship between unemployment and price increases is expected under normal circumstances, when the price increases are dictated mainly by increased demand for goods and services in the economy.

Yet, this price increase was largely affected by the temporary supply-side disruptions in the economy, stemming from inclement weather, which increased the prices of volatile goods such as food.

However, the Department of Census and Statistics (DCS) noted that there have been no significant changes statistically in unemployment rates over the past three years, when considering the errors in the sample of the survey that was conducted.

A supply-side disruption usually increases prices, decreases the economic activity and thus increases unemployment. 

However, the country’s gross domestic product (GDP) managed to grow at a moderate 4 percent during 2Q17, since agriculture, which was the worst affected by the drought, contributed the least to GDP.

The country’s total labour force during 2Q17 was 8.52 million, up from 8.19 million year-on-year (YoY). The low female labour force participation rate showed improvement at 35.9 percent, compared to 35.1 percent YoY. When comparing to the first quarter of this year, 2Q17 saw the destruction of 91,479 jobs. The unemployment rate in the first quarter had been lower, at 4.1 percent. 

Despite drought more labour flocks to agriculture 

The labour anomalies in agriculture seemed to have increased in 2Q17, with more Sri Lankans flocking to the nose-diving sector, despite experiencing the worst drought in over 40 years.
Employment in agriculture increased 7.77 percent YoY to 2.11 million individuals in 2Q17, which was 26 percent of total employment in the country.

However, agricultural output in the economy fell by 2.9 percent YoY in 2Q17, contributing 6.96 percent to GDP.The low supply from local agriculture caused food prices, which were already abnormally high in Sri Lanka, to skyrocket, with US $ 418.2 million worth of food imported during the quarter, an increase of 11.13 percent YoY, according to the Central Bank data.

Census and Statistics Department Director General Dr. Amara Satharasinghe told Mirror Business that it is hard to compare the employment and GDP contribution in agriculture.

“These effects are multifaceted. There’s no one-to-one linear relationship between GDP and employment. For example, even if paddy growing is high in agriculture, how paddy farming affects GDP and how it affects employment is different. It’s difficult to create a relationship without doing more research,” he said.

However, it could be speculated that some living in agricultural areas may have classified themselves as employed in agriculture in order to benefit from drought relief packages from the government. The survey respondents could also have been untruthful for other reasons. 

Another explanation could be that this increase in employment in agriculture occurred due to significant events in 2016, since the Census and Statistics Department in 2Q16 said that intense rainfall, flooding and landslides may have had an impact on employment distribution. This had mainly affected the tea and rubber plantation areas and regions outside the country’s rice bowl.