Real Wage Trends and Labour Market Integration in Sri Lanka's Central Province

Abstract:     
The study applies cointegration techniques to the Central Bank's informal wage sector series for agriculture and construction to analyse real wage trends and trends in labour market integration in Sri Lanka's Central Province during the post-liberalisation era. The study finds that real wages in the tea, paddy and masonry sectors in Central Province have been largely stagnant over the reference period. The exceptions are the paddy sector in Kandy District and the masonry sector in Nuwara Eliya District where real wages have been rising. Nominal wage differentials between sectors have remained constant for the most part with indications of labour markets tightening only in the paddy and tea sectors in Kandy District, with workers at the margin moving from the (rural) tea and paddy sectors to the masonry sector (non-farm, urban). Real wages of unskilled masons in Nuwara Eliya have risen, but there appears to have been little movement of workers between sectors within the district as evidenced by the behaviour of wage differentials. Hence, in Nuwara Eliya District as in Matale District and unlike in Kandy District, informal labour markets appear largely segmented. Between-districts wage differential analysis too, suggests highly segmented regional labour markets in Central Province. Spatial, skills-related and institutional barriers to mobility may be key factors associated with the poverty commonly experienced among this group of workers. The analysis suggests further research to identify the key socio-economic characteristics such as religion and ethnicity, income, skill and education levels, assets, access to services including infrastructure, transport and social services that constrain workers from responding to positive wage signals in neighbouring and other areas.

Keywords: Informal labour markets, regional labour markets, labour market segmentation, Sri Lanka

JEL Classifications: J42, J43, O18

Accepted Paper Series