Unemployment up in 3Q; labour force participation continues to shrink

• Economy faces double whammy as people give up seeking jobs amid rising unemployment 
• Labour force participation rate, the proxy for job market strength, further shrinks 
• Pandemic pushed people into sidelines while some opted for early retirement 
• Official jobless rate continued to stay above 5% since beginning of the pandemic

Sri Lankans continued to lose jobs in the third quarter through September 2021 while some gave up on looking for jobs after the pandemic and its associated economic downturn pushed scores of people into the sidelines, deepening the skill shortages facing the country, which is integral in powering the next stage of the country’s economic growth. 

According to the latest data made available by the Central Bank, Sri Lanka’s official unemployment rate edged up to 5.2 percent in the third quarter of 2021 from 5.1 percent in the second quarter, reflecting that more people lost jobs during the six weeks of partial closure of the economy due to the pandemic from mid August.  

Although industries engaged in exports and others categorised as essential services continued to operate, some had to either scale down their operations or shut them down altogether resulting in cutting down staff. 

Leisure, entertainment, travel & tourism, and restaurants were the hardest hit and are still reeling from the effects of the pandemic related restrictions. 

A leading restaurant chain, which has operations in four other locations in the country, said only their Colombo restaurant was in operation, and that too with intermittent interruptions while the rest were kept shut since the onset of the pandemic. 

Due to fewer patrons in their iconic Colombo restaurant they had to cut down on their staff, while they are now compelled to relocate to a cheaper location as they are unable to bear the rent of their current location.

Sri Lanka’s official jobless rate has remained above 5.0 percent level continuously since the end of 2019 when the rate was at 4.5 percent. An unemployment rate of 4.0 percent to below is typically recognised as an economy with near full employment. 

However, the official unemployment rate masks the shrinking labour force in the economy, a much larger issue facing the country. Some people who lost their jobs during the pandemic have given up on looking for jobs while another segment have decided to retire early either due to the losing prospects in the industry they work for or due to the virus concerns. 

These conditions, which have been brewing for sometime, came to a head in the July- September quarter as the Labour Force Participation Rate (LFPR) which measures those who are both employed and unemployed but are looking for work, measured in relation to the working age population, continued to shrink. 

According to the data, the LFPR fell to 49.5 percent in the third quarter from 49.8 percent in the second quarter and 51 percent recorded in the year earlier period. 
This should raise serious concerns for policy makers as the country is gradually losing its working population which is capable of powering the growth of its economy, that fell into new depths last year. 

The situation aggravates when Sri Lanka has one of the highest ageing populations in the world as the country’s shrinking labour force is left with an enlarging number of dependents, adding more pressure on the fiscal woes. 

However, in a progressive step, the government increased the retirement age of public servants by 5 years through 60 with retirement benefits intact, and the legislation was passed in November last year giving it effect. Meanwhile a proposal was made in the same month in the budget to increase the retirement age up to 65 years.