IPS researcher says archaic labour laws need to be amended   

Sri Lankan workers have no incentive to learn new skills and improve themselves due to the archaic labour laws which lower the productivity of a company and the economy, Director of Research at IPS, Dr. Nisha Arunatilake, said, talking to economy.lk.

On the 2017/2018 Global Competitiveness Index Sri Lanka slipped to the 85th position, from 71st in 2016/17. One of the main reasons for this decline is worsening labour market efficiency, where Sri Lanka is ranked 131 among 138 countries.

Source: World Economic Forum

The World Economic Forum has highlighted poor work ethic in the national labour force and restrictive labour regulations as the most problematic factors for doing business. 

Source: World Economic Forum


"There are two main reasons for this. One is that hiring and firing in Sri Lanka is difficult, and the other is inequality in labour market as a result of low female labour force participation. As Sri Lanka is no longer a low income country, it can no longer capitalize on cheap labour. Consequently, there is a need to be more sophisticated, efficient and productive, and if we don't address these issues, the Government's plan to double per capita by 2025 and create one million jobs will be unrealistic," she said. 

The main law that stipulates how a company can lay off workers in Sri Lanka is the, Termination of Workers Act of 1971. According to this act, if a worker is employed at a company for 20 years, the organization has to pay him 39 months of salary to lay him/her off. This is a very high number compared to Organization for Economic Co-operation and Development (OECD) countries (6 months). Although it is essential that workers are compensated if they are being laid off, organizations tend to freeze hiring when the cost of redundancy is as high as it is in Sri Lanka.

Dr. Arunatilake adds that as technology changes at a rapid pace, Sri Lankan industries need productive and efficient workers.

"Due to the rapid rate of change sometimes the workers that a company hired five years ago might no longer fit with the company. But because you can't fire a worker hired five years ago, you don't hire another worker that suits the new direction you are taking. On the other hand, since the workers know it's difficult to fire them, they also have no incentive to learn new skills and improve themselves. This lowers the productivity of a company and the economy," she said. 

Meanwhile Mr. Saman D Waduge, Director General of the National Institute of Labour Studies stated that the Government understands that the labour market needs to be more competitive and that labour laws must be relaxed. In the last two years steps have been taken to introduce legislations that will make it easier for institutions to be more flexible with their recruitment, whilst assuring the rights of workers.

However, analysts claim that although two and a half years have passed since the election of the Ranil Wickremesinghe lead UNFGG government, labour reform initiatives have been extremely slow and Sri Lanka has in fact fallen in the Global Competitiveness Index.




The Ceylon Chamber of Commerce

Economic Intelligence Unit

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