SL records lowest unemployment rate since 2018 as labour market tightens

• Jobless rate falls to 3.8% in 1Q25

Sri Lanka’s unemployment rate fell in the first quarter of 2025, while the labour force participation rate rose, signalling improving labour market conditions as the expanding economy creates more jobs.

According to the latest quarterly labour force survey, the official jobless rate fell to 3.8 percent in the first quarter of 2025. This is a significant drop from 4.4 percent of the full year 2024 and 4.5 percent in the first quarter of 2024. This marks the lowest unemployment rate recorded since 2018 and is potentially the lowest on record.

An unemployment rate below 4.0 percent is typically considered full employment, which suggests tightening labour market conditions. 

In a tight labour market, businesses struggle to fill vacancies because the available labour pool is small. Consequently, they often need to offer higher wages to attract and retain employees. This situation is exacerbated by emigration, as many Sri Lankans continue to seek better pay and living conditions abroad.

Recent Purchasing Managers’ Index (PMI) data confirms this trend, showing increased hiring in both the manufacturing and services sectors to meet rising demand. The construction sector, a significant employer, also resumed hiring in the second quarter as confidence grew with the restart of halted projects and the launch of new ones.

These positive developments follow a challenging period. The construction sector, along with hospitality and entertainment, saw significant job losses starting around 2020 due to pandemic-related lockdowns, forcing many workers to seek opportunities abroad.

The situation intensified in 2022 when the economy came to a grinding halt due to a foreign currency crisis, which prevented the import of essential goods like fuel, medicine, and food. An estimated one million people left Sri Lanka between 2022 and 2024 due to these deteriorating economic conditions.

A gender breakdown of the latest data reveals a disparity, with female unemployment at 6.3 percent compared to 2.5 percent for males in the first quarter.

Meanwhile, the labour force participation rate—the percentage of the working-age population that is either employed or actively looking for work—rose to 49.7 percent. This is an increase from 47.4 percent for the full year 2024 and 47.1 percent in the first quarter of 2024.

By the end of the first quarter of 2025, Sri Lanka’s working-age population (age 15 and above) was 17.03 million. Of this, the economically active labour force stood at 8.46 million, with 8.14 million people employed and 322,331 unemployed.