The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Exporting labour: Do we have a surplus?
There has been much jubilation in arriving at an agreement to export 50, 000 labourers to Malaysia. Presumably this is expected to ease an unemployment problem in the country and bring additional incomes to the poorer segments of our population. For several decades Sri Lanka has been exporting labour, mainly to West Asia, though some have also sought pastures in Singapore and Hong Kong.

The agreement to send labour to Malaysia is to work on the estates and perhaps in construction. These two sectors have depended heavily on immigrant labour as the economic development and transformation of the Malaysian economy has rendered the country a full employment economy. Besides this the employment opportunities in the other sectors of the economy have raised wages to levels where employment at such wage rates renders rubber and oil palm plantation agriculture uneconomic.

Therefore the import of labour at lower wage rates is a rational economic proposition for Malaysia. It is by no means the granting of a favour to Sri Lanka. Malaysia has been importing labour from neighbouring South East Asian countries such as Indonesia and the Philippines in the past. In 1997-8 when the East Asian Economic crisis occurred there were as many as two million migrant labourers. About one half of them had to leave the country.

The economic rationale for importing labour is very clear in so far as Malaysia is concerned. Is it so with respect to Sri Lanka? Unlike Malaysia, Sri Lanka is considered a labour surplus economy. Although the rate of unemployment has declined in recent years, we have an unemployment level of around nine per cent.

Some would argue that this is an underestimate and that the actual rate of unemployment is higher. Besides this there are about 150,000 persons entering the labour market each year. All these facts appear to point out that the country has an unemployment problem and that the export of labour is rational economically.

A deeper analysis of the unemployment problem appears to indicate that the issue is far more complex than meets the eye on a superficial glance at the statistics. While there is no doubt that an unemployment problem exists, there are labour shortages in agriculture. In fact these labour shortages appear to be a threatening constraint to agriculture. Several studies in a number of paddy producing districts indicate a lack of labour to undertake proper cultivation practices.

The high cost of wages is an important factor for rendering the cost of paddy production high in comparison with those of many other paddy producing countries in Asia. The story in tea is no different. Estates are finding it difficult to retain adequate labour. In fact resident estate labour is recording high rates of absenteeism as they are seeking more remunerative employment in the neighbouring villages.

Far from there being a labour surplus for agricultural activities, there are shortages that are constraining optimum agricultural production. Therefore the export of labour that is much needed for our agriculture is an unwise policy direction.

The clue to the paradox of labour shortages in a labour surplus economy lies in what was described as long ago as in the 1970s as a "mismatch". The character of the "mismatch" has changed somewhat, but a mismatch between labour availability and the kind of labour needed or demanded remains.

The unemployment problem remains one of the "educated" seeking blue collar and white collar employment that is not only in short supply, but those seeking such employment do not in fact have the capacity to perform in these jobs.

The export of labour to Malaysia is not likely to solve the unemployment problem. It may however aggravate the problem of labour shortages in agriculture. Besides this, there are the social problems that arise especially as the entire household is not likely to be allowed to migrate.

This will be akin to the problems created by the outflow of labour to the Middle East. The government does not appear to have considered the complex issues arising from the export of labour to Malaysia. It is indeed sad to think that a myopic perspective guided by gains on foreign exchange remittances appear to guide government policy.

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