Forty years since the economy liberalized, labour laws still hamstring business

Despite the opening up of the economy in 1977, little has changed in the labour law framework of Sri Lanka. The benefits of liberalized economic policies and practices will not deliver desired outcomes unless parallel labour reforms are instituted.

Given that sustained economic growth and job creation need to be driven by the private sector and FDI, employers continue to complain that labour laws are drastically hampering the ability of businesses to swiftly respond to the rapidly changing business climate.

Talking to economy.lk, State Minister of National Policies and Economic Affairs Hon. Dr. Harsha de Silva said that the government has the political will necessary to make unpopular policy decisions regarding labour market reforms, as an immediate course correction is vital for economic sustainability.

Given the limited success the government has so far achieved in instituting meaningful reforms, observers consider Hon. Dr. Harsha de Silva's comments to be wishful thinking at best.  The track record of the Sri Lankan state in reforming labour since the first wave of reforms in the late 1970s has been dismal. Critics say the government has so far failed to make any significant progress in reforming the labour sector.  Employers have repeatedly underlined the need to rationalize multiple pieces of legislation, some of which are obsolete or out of line with the current development goals of the Government. The validity of these concerns was recognized by the ILO in their 2015 research note, ‘A four-country review of labour law reform processes and accompanying social and policy dialogue.’ The ILO also highlighted that Sri Lanka neither carries out regular and systematic cost/benefit analyses of proposed legislation nor engages in meaningful dialogue with stakeholders.

Collaboration and consensus are not shining features of the state-labour relationship. Current efforts by the government to modernize the labour sector to bring it up to date with the country’s development needs seem to have stirred up the hornet’s nest once again. The attempts by the government, which have given trade unions more space for demonstrations and other union action, are set to face similar resistance by trade unions who have already written to the Secretary, Ministry of Labour, Trade Union Relations and Sabaragamuwa, objecting to the involvement of the ILO, a non-domestic entity, and the Ministry of Development Strategies and International Trade in the review of labour laws.

An opposing view is that the proposed labour market reforms lack legitimacy and credibility as they have not received the endorsement of the unions. Further to this view, it is believed that the reform process needs to be a transparent process and the public should be made aware through the media both electronic and print. Pursuing any other course would be fraught with disappointing consequences.

Some of the political observers tend to support this view, because in general this government has failed in engaging the public in a constructive manner. Some cite elitist thinking at the helm of the ruling party.

Hon. Dr. Harsha de Silva recognized the validity of these concerns and said that the government is working on improving evidence based advocacy strategies, and recognized the need for effective and increased use of the media to reach out to the public and mobilize support and dedicating more resources to developing a regulatory impact assessment model.

Hon. Dr. Harsha de Silva added that the government is working on creating a development policy framework that gives special attention to creating a sophisticated and modern knowledge based economy, and that amending labour laws to enable flexible and part-time working hours in an attempt to increase female labour force participation, which is currently at 35%.

Critics say the government cannot ignore worker aspirations, should be sympathetic and willing to build consensus through trade-offs if it wants to fast track its development agenda. At the same time, workers should be alive to economic realities and their sense of entitlement should be contained.

How soon or even if Sri Lanka will ever reach the level of an upper middle income economy will depend on the government’s ability to gain trade unions’ “buy-in” to their reform agenda. If history is an indicator, that task will be futile. 


The Ceylon Chamber of Commerce

Economic Intelligence Unit

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