Saving Local Labour Market from COVID-19

By Anjali Caldera | Published: 2:00 AM Oct 15 2020
FT Saving Local Labour Market from COVID-19

By Anjali Caldera

COVID-19 has had a massive impact on the global labour market with millions losing their jobs. As a result of the lockdowns and travel restrictions, demand has slumped and many businesses have been forced to close or halt operations, resulting in many redundancies. 

The International Labour Organisation (ILO) estimates that, in the early stages of the pandemic, on 15 March 2020, 49.3 per cent of domestic workers were significantly impacted. This figure peaked at 73.7 per cent on 15 May 2020, before reducing to 72.3 per cent on 4 June.

Main consequences of COVID-19 in the labour market are the reduction of working hours, salary deductions, no pay leave, loss of jobs etc. As per the ILO report on the “Impact of the COVID-19 crisis on loss of jobs and hours among domestic workers”, domestic workers who were in lockdown and who were not previously registered to social security were considered to be at higher risk of losing their jobs and income while domestic workers who were in lockdown, but who were registered to social security, faced a lower risk of losing their jobs or income.

The ILO further reports that 436 million enterprises, comprising both employers and own account workers are currently facing the ‘high risk of disruption’. It was also said that 68 per cent of the global workforce is currently living in countries that recommend or require the closure of workplaces.

Globally, manufacturing, accommodation and food services, wholesale and retail trade, and real estate and business activities have been identified as the hardest hit sectors of the economy. 389 million own account workers are operating in these four sectors, indicating the gravity of the crisis situation.

According to the same report, in Asia and the Pacific, 79.4 per cent of domestic workers were significantly impacted by 15 May, but a much higher proportion (87.5 per cent) were impacted in the South Asia sub region. Three-quarters of domestic workers who were significantly impacted were in informal employment.

Impact on local labour market

The Department of Labour has been witnessing and experiencing the multiple challenges faced by the labour market since early March 2020.

In May 2020, former Prime Minister Ranil Wickremesinghe said that as many as 500,000 people could be left unemployed in the country due to the pandemic and he urged the Government to come up with a credible stimulus package to help the local economy ravaged by the pandemic.

The Department of Census and Statistics (DCS) fourth quarter 2019 report reveals the economically active population of Sri Lanka was at 8.6 million, with 64.5 per cent being male and 35.5 per cent female. Out of this the private sector employs almost 3.5 million people, whilst own account workers account for 2.7 million. A total of 46 per cent are employed in the services sector, with 37 per cent in the industries sector and 27 per cent in agriculture. Services sector includes 13 out of 21 key occupational clusters including the wholesale and retail trade, repair of motor vehicles and motorcycles, transportation and storage, accommodation and food services activities, education, public administration and defence. Manufacturing and construction are included in the industries sector. It is noteworthy to mention that 81.3 per cent of the private sector employees and 57.3 per cent of own account workers are employed in the non-agricultural sector. 

The minimum economic activities carried out since mid-March to date have impacted all stakeholders of the labour market. The working population without any form of social security were highly vulnerable to the loss of income. 

After successfully controlling the first wave of the pandemic, the Government re-opened the agriculture sector including tea, rubber and fisheries, which have had a significant impact on production, employment, and livelihoods. Yet the industrial and services sectors have almost come to standstill. No exports except tea and health related products are taking place owing to a lack of demand and due to the inability to import raw materials. The tourism sector which was struggling to survive after the Easter Sunday attacks in 2019 has slumped further into trouble with no indication of when it could revert to normalcy.

Remittances which were contributing from eight to nine per cent of GDP (around US$ 7 billion) is drastically declining and it is expected that a significant number of migrant workers will return due to non-availability of demand for their work in destination countries. The World Bank has forecast that the earnings from foreign employment will fall by about 20 per cent this year.

Meanwhile, social distancing rules and imposed curfews have restricted the income earning opportunities of daily wage workers and own account workers too.

All these events have badly affected the labour market here. It is said that there are no exceptions in labour laws which could be applied in situations like COVID-19. Therefore, protecting employment whilst protecting businesses and ensuring sustainability has become a challenging task.


The Department of Labour says that although the crisis that arose from the spread of COVID-19 could not have been predicted or planned for, concrete plans for the revival of industries in the country are essential to minimise the threat to the labour market. 

An e-survey conducted on private sector establishments in May 2020 on ‘COVID 19 & Beyond – The impact on the Labour Market of Sri Lanka’ by the Department of Labour’ highlights two-fold recommendations, both short-term and medium-term. 

It is believed the short-term recommendations will ease the financial burden on employers and allow them to sustain their businesses.

Short-term recommendations

1. Retaining employees with deducted salaries – Due to non-availability of work, short-term lay off strategies, which ensure return to work within a six-month period, with the payment of a certain percentage of their wages instead of terminating their employment. Both EPF and ETF contributions to be continued during this time – guaranteeing continued social security.

2. Establishments to be allowed to make payments according to the number of hours worked by each employee, if loss of business/ social distancing requirements has resulted in lower hours of work per employee.

3. Continue the granting of loans to provide working capital to the businesses at lower interest rates.

4. Allow employers to recover a portion of ‘lost paid hours without work’ in future after getting the consent of Trade Unions or relevant parties.

Medium-term recommendations

1. Establishment of a comprehensive integrated social security scheme including an unemployment benefit scheme linked to reskilling, re-employment, and up-skilling.

2. The COVID-19 pandemic has provided an opportunity to create Health and Education hubs, catering not only to local demand but also to international demand. This will create significant additional employment opportunities which could mitigate the increased unemployment due to the pandemic and have a positive impact on the external sector of the country.

3. Strengthen social dialogue mechanisms at enterprise and sectoral level to mitigate the negative impact of the labour market leading to industrial peace.

4. Exploring and adopting strategies to modernise and diversify agriculture, fisheries, apparel and textile industries and tourism sectors.

By Anjali Caldera | Published: 2:00 AM Oct 15 2020

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