Short-term labour market impacts of Covid-19: evidence from Sri Lanka

Abstract

The Covid-19 pandemic and measures adopted in preventing its spread have resulted in a number of short- and long-run socio-economic consequences. This study aims at identifying the short-term effects of Covid-19 on Sri Lanka’s labour market. Using data from nationally representative Labour Force Surveys, this study employs some descriptive analytical tools in investigating the impacts. At present, the labour market suffers from a number of issues such as low female labour force participation, high level of informality, youth unemployment, and NEET rate. These underlying labour market conditions are critical in understanding the short-term effects of the pandemic. The elasticity estimates revealed that output reduction may have been associated with larger employment losses in Construction, Accommodation & Food Services, and Manufacturing, Entertainments & Recreation, and Real Estate sectors. More importantly, it was found that the short-term effects of Covid-19 have distributed disproportionately where females have suffered severely compared to their counterparts. In addition, unemployment has significantly increased among young females in 2020 compared to that of young males. In addition, the number of hours of work has declined significantly during the pandemic period. The private sector formal and informal employees have witnessed a decline in their real wages during the pandemic period. In summary, female and informal workers were at high risk of losing jobs and earnings, in particular, those who engage in the high-risk industries identified above. The labour market outcomes discussed in this paper mostly reflects the effects of the first and the second waves of the pandemic. It is expected that the third wave has many severe effects given its spread and some of the measures taken in preventing its spread. Hence, it is imperative that policymakers pay attention to these adverse effects and introduce appropriate policy measures to improve the labour market conditions of the most vulnerable groups.