Sri Lanka’s cost of living went off the charts during the past week, with prices of food commodities such as carrots, beans, and chillies skyrocketing by at least 50% due to supply chain constraints.

However, this has been the story since April 2022, when the country went through its worst economic crisis since 1948. Although the cost of living has kept on increasing, the wages and income levels of people have not caught up at the same speed.

The last time Sri Lanka increased its minimum wage was in 2021 before the crisis, with the minimum monthly salary of private sector employees declared as Rs. 16,000 and the minimum daily wage being fixed at Rs. 640 (including Budget Allowance of 2005 and Budget Relief Allowance of 2016) by the Labour Ministry.

Determination of the minimum wage 

There is no single minimum wage in Sri Lanka. Minimum wages are determined by sector-specific tripartite wage boards for more than 40 trades in Sri Lanka. Minimum wage may be determined on an hourly, daily, weekly, or monthly basis by Wages Boards constituted under the Wages Boards Ordinance.

Employers are required to pay the minimum wage determined by a trade-specific Wages Board. There are no specific criteria for determining the minimum wage rate, which is instead adjusted according to the variation in the cost of living index applicable to workers in that trade. Minimum wage rates vary in accordance with the occupation, sector, region, and category of workers. 

An increase in the minimum wage rate is mutually decided by the Government, trade union representatives, and employers. Under the National Minimum Wages Act No.3 of 2016, the national minimum monthly wage for all workers in any industry or service is set as Rs. 10,000 and the national minimum daily wage of a worker is set as Rs. 400, which was later increased in 2021 as mentioned above. 

Minimum wages in the private sector

There is no proper data on the average minimum wage in the private sector. However, Labour Department statistics show that the monthly average minimum wage in the public sector was at Rs. 34,550 at the end of 2021.

Speaking to The Sunday Morning, Employers’ Federation of Ceylon Director General Vajira Ellepola said that increasing the minimum wage did not necessarily increase the basic salary of most private sector employees as most private sector basic salaries were above the minimum wage threshold.

For example, if the minimum wage is Rs. 16,000 and the basic salary of employee ‘A’ is Rs. 25,000, then an increase in the minimum wage to Rs. 20,000 does not necessarily increase the basic salary of ‘A’ in accordance with the increased amount.

“The initiative to increase the minimum wage should generally come from the Government when the cost of living and various factors are in favour of an increase,” he said.

Under the Minimum Wages Act, Ellepola said that there was no provision for the tripartite constituency – the Government, trade unions, and employers – to decide on the minimum wage while only the Wages Boards Ordinance provides provisions for the Tripartite Agreement.

Speaking to The Sunday Morning, Ministry of Labour and Foreign Employment Secretary R.P.A. Wimalaweera said that the proposed amendments to the labour law would bring in a National Remuneration Council which would replace the functions of the Wages Boards in deciding the minimum wages of different sectors.

Accordingly, the proposal envisages introducing a National Remuneration Council instead of the system of minimum wage determination by Wages Boards’ decisions and statutory law and empowering that body to determine minimum wages on contemporary and accepted criteria.

Estate workers

Speaking to The Sunday Morning, Upcountry People’s Front Youth Wing Leader Sanjay Letchumanar said that the Government and the plantation owners could increase the daily wages of the estate sector workers as the daily wage had been brought up to Rs. 1,000 in 2021 when the US Dollar was in the Rs. 180-200 range but since the dollar was now at Rs. 330, the daily wage should be increased to about Rs. 2,000.

In October 2023, Letchumanar raised the issue of estate workers’ daily wages at the United Nations Human Rights Council (UNHRC), asking for a daily wage increase of $ 2 (Rs. 700), following which the UNHRC provided a statement in November asking the Government to adopt the resolution, which is yet to be done.

Letchumanar said that a family of four with the parents working as estate workers could earn up to Rs. 2,000 per day through daily wages but added that Rs. 60,000 per month was not sufficient to cover the expenses for education, food, and travel of children, especially when travelling in three-wheelers as some roads do not have a bus for transport.

He also said that the collective agreement with the trade unions and plantation owners had been cancelled as the Government had intervened to increase the daily wage in 2021.

In November, the Indian Government initiated a project to provide 10,000 houses for estate workers in the upcountry and the Northern Province – the only major development project based on estate workers that was initiated recently.

“The development work initiated by the Government for upcountry Tamils is not being done properly,” Letchumanar said, adding that governing party politicians of the constituencies were not spending money on the upliftment of estate workers’ lives.

Tea Factory Owners’ Association Chairman Lionel Herath said that if estate workers’ wages were to be increased by about Rs. 1,000, then it should not be coupled with the daily wages but be centred on a productivity incentive or attendance incentive.

“Based on that, we can negotiate on a wage hike with the Government and the trade unions. With Rs. 1,000 as the basic daily wage, the additional wages can be provided based on performance or productivity,” he said.

In December, President Ranil Wickremesinghe asked the leaders of plantation companies to unite in efforts to establish a collective agreement again regarding the daily wages of estate workers, while proposing a minimum wage of Rs. 1,700, aligning with the workers’ demand.

This recommendation is in addition to a budgetary proposal announced during Budget 2024 to allocate Rs. 4 billion to address the needs of citizens in the estate sector.

Speaking in Parliament on 12 January, Non Cabinet Minister of State Plantation Enterprises Reforms Ranjith Siyambalapitiya said that a committee had been appointed as per the instruction of President Wickremesinghe chaired by the Labour Commissioner, including plantation owners, trade unions, and other stakeholders to increase the daily wages of the estate workers.

However, Herath said that they had not been called for any meeting by the Government regarding the increase in daily wages.

Increased cost, less income, indebtedness

Speaking to The Sunday Morning, Frontier Research Head of Macroeconomic Risk Advisory Chayu Damsinghe said that the bottom 50% of the population had been pushed into poverty and debt with the changes in consumption due to increases in prices, while changes in consumption patterns could also be seen among the higher end of the population in relation to particular types of expenses.

“Generally, there is an increase in indebtedness at the household level and most of that indebtedness is happening at a retail level where people buy groceries on credit,” he said.

He added that there could have been an increase in consumption-related lending at a local level, which was likely to happen in an economic crisis.

According to the Central Bank, the Non-Performing Loan (NPL) ratio of the Household sector has been increasing steadily, amid constrained debt repayment capacities of household borrowers. 

By the end of June 2023, the NPL ratio for the Household sector increased to 17.7%, a considerable increase from the 14.1% recorded during the corresponding period of the previous year. 

“The share of non-arrears loans within the total Household sector also gradually decreased since the beginning of 2022 while the share of arrears loans was on the rise in tandem, indicating a continuous deterioration in the credit quality of the Household sector, which may persistent in the future if adverse economic conditions are to continue,” the Central Bank Financial Stability Review for 2023 said.

Moreover, speaking in Parliament on 9 January, State Minister of Finance Shehan Semasinghe said that 22% of the estimated household units of 6.2 million people had been pushed into indebtedness due to the economic crisis.

He said that out of household units which had been pushed to indebtedness, 24.3% were urban households, 20.9% were rural households, and 42.8% were estate households. He added that 60.5% of the household units had seen a reduction in income due to the economic crisis while expenses had increased in 90% of household units.

The State Minister said that according to a survey done by the Samurdhi Department in the Anuradhapura District, 95% of the borrowers who were struggling with microfinance debt were women. At the same time, the majority of the credit had been obtained for consumption purposes.

Regarding private sector wages, Damsinghe said that although there had been an increase in private sector salaries, it was not in line with the rate of inflation.

However, he said that in the estate sector, it was not as straightforward as increasing the minimum wage as there were many complexities involved.

He said that although Sri Lanka labour protection laws ensured the enforcement of labour protections such as minimum wages, this was sometimes inadequate since labour protections were too restrictive for businesses, particularly for smaller businesses.

“Raising the minimum wage might help businesses and individuals at the minimum level in formal employment, but because Sri Lanka still has a significant informal sector, the benefit may still be limited,” he added.

According to the Labour Department, 58% of the workforce was employed in the informal sector as of the end of 2022.