Financial Times

Informal sector to grow with recession, increasing income insecurity - ILO

By Dilshani Samaraweera

Sri Lanka’s informal employment sector is expected to expand further when global recession impacts start to spread-out over the island’s economy next year.

This is expected to increase income and employment “insecurities” for large numbers, as already, over half the working population in the country is in the informal sector. To protect the vulnerable, the International Labour Organisation (ILO) is calling for stronger social security systems.
“We expect the informal sector to grow, in times of recession, because employers would have more space to operate under loose working arrangements, instead of formal contracts. Also, workers traditionally have lower bargaining power at times of recession. But expansion of informal sector has many negative social impacts and these need to be countered through better social security,” the ILO country director, Tine Staermose, told The Sunday FT in an interview.

According to the latest Labour Force Survey data for the 2nd quarter 2008, Sri Lanka’s total working population is about 7.1.million persons. Out of this, about 15% are working in the public sector while the balance is in the private sector. However, a majority of working people (58%), are in the informal sector.
Although the ILO still does not have estimates on the scale and distribution of recession impacts in Sri Lanka, even in the formal employment sector, job cuts and slower wage increases are expected, particularly in the export sector. Service exports like foreign employment opportunities and tourism are also expected to slow down.

Under these conditions the informal sector is expected to expand, increasing income insecurity for a majority of people. “People working in the informal sector are more vulnerable to economic shocks. They have no job security and are also not covered by national worker welfare measures like the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF) to fall back on,” said Ms Staermose.

Strengthen social security
The ILO says Sri Lanka needs to address gaps and weaknesses in the existing social security system to minimise impacts of the global recession. Better social security, says the ILO, will make the recession adjustment process less painful for workers and employers and also government.

“People will be more willing to work under flexible terms if they have a better social safety network to fall back on. This would also reduce pressure on employers to provide welfare measures. Also, better social security would minimise possibility of social unrest,” said Ms Staermose.

The ILO notes that although basic social security services like public health and education are available in Sri Lanka, large numbers cannot make maximum use of these services because of poverty and other access barriers.

“Sri Lanka has a very good social security system compared to most developing countries. But there are gaps in the ‘social security floor’ that leaves people vulnerable to economic shocks,” said Ms Staermose.

The ILO says these gaps in basic social welfare, like access difficulties to health services and education, and worker welfare, must be addressed to minimise damages from recession. The ILO says it is highly likely that the government will have to dig deeper into its resources for more relief packages for industries and consumers.

However, the ILO notes that in the meantime, new opportunities would also emerge to benefit the country. For instance, western businesses are expected to outsource more production aspects to this part of the world to cut costs. This could generate new jobs and business opportunities. Also the lowering rate of inflation, if sustained, is expected to increase purchasing power of working people.

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