Sri Lanka faces a structural contradiction in its labour market, with a surplus of workers and skill shortages affecting national productivity and economic growth.
In an interview with The Sunday Morning Business, University of Colombo (UOC) Department of Economics Senior Lecturer Dr. Shashithanganee Weerawansa highlighted the urgent need to address the skills mismatch through the adoption of several models to integrate education and employment effectively, while also establishing an integrated workforce strategy.
Following are excerpts:
Sri Lanka faces both a labour surplus and skill shortages. Why do we observe this mismatch?
It sounds contradictory, but this is one of the biggest structural problems we have. We have a labour surplus, while we also face a skill shortage because our education and training systems are not producing the skills needed by the industry.
For instance, the overall unemployment rate around 2024 was 4.4%, but youth unemployment was over 23% and graduate unemployment was even higher, especially among those who studied social sciences. At the same time, employers across various sectors – IT, manufacturing, hospitality, renewable energy, and even academia – report they cannot find skilled personnel. This clearly indicates a serious mismatch.
What are the structural factors within the labour market that contribute to this imbalance?
The very first issue is the education-employment misalignment. Institutions continue to focus on traditional academic pathways. In contrast, countries like South Korea and Singapore channel half of their upper secondary students into vocational or technical streams that are directly tied to industry needs. In Sri Lanka, this figure is below 10%, which is quite low.
There is also a lack of collaboration between the education sector, educators, and employers. Many students graduate from universities without a single internship or exposure to a real workplace. Many developed countries utilise dual training models where students alternate time between the classroom and firms. This approach is a key reason why youth unemployment in many developed countries remains below 6%.
The next issue is the geographical and gender gap. Most of our formal jobs are concentrated in the Western Province or in urban areas and talented youth from rural areas struggle with relocation. Barriers are even higher for women, especially those with children, who require childcare facilities and safe transport, alongside facing social expectations. All these factors push many women out of the labour force altogether.
Perhaps one of the most important factors is the cultural mindset. Many young people, especially State university graduates, still perceive Government jobs as the only responsible career path. However, the public sector is already saturated. The private sector should be the engine of growth, driving investment and innovation.
What can be done to fix this imbalance?
We certainly need to expand our education system to include skills-based education while improving the existing qualification-based education. Our education system and universities must work closely with the industry to ensure graduates are employable, not just educated.
There must also be a system for technical skill certification. We need to expand vocational and technical education, ensuring it is seen not as a second choice but as a respected path to good jobs.
We must also improve regional opportunities so that finding work does not always require migration to Colombo. For women, especially within the Sri Lankan cultural context, providing safe transport, childcare facilities, and flexible work policies can make a huge difference. We do not lack people, but rather alignment between skills, jobs, and opportunity. I believe that fixing this will resolve half of Sri Lanka’s economic challenges.
How can the country better align its human capital with the new economy?
The problem is that our education and training system is still designed for the 20th century, not the 21st. We continue to produce thousands of graduates in fields with limited market demand, while struggling to fill vacancies in growth sectors. We must focus on areas such as IT, data analytics, logistics, robotics, green technology, and advanced manufacturing. These sectors are struggling significantly to find qualified workers.
A truly effective human capital allocation model begins with real-time labour market intelligence. First, Sri Lanka needs a national skills forecasting system, which we currently lack. This should be a platform that uses employment data, firm surveys, and technology trends to predict what skills will be in demand in the future, perhaps 5-10 years out.
Second, education institutions must respond to those forecasts. Curricula should be dynamic, updated regularly. We also require mobility and flexibility in our workforce. People should be able to upskill or reskill easily through short, stackable certifications. This means one should be able to acquire qualifications that build upon one another, rather than being locked into a single qualification for life.
What about structural reforms? Can policy play a role here?
Definitely. Government policy must treat education and employment as part of the same system with joint planning, rather than separate ministries operating in silos, which is currently the case in Sri Lanka.
Incentives also matter. Tax credits for companies that invest in employee training, or Public-Private Partnerships (PPPs) for technical institutes, can make a huge difference. Digital inclusion is also crucial. We must bring high-quality technical education and digital infrastructure to every district.
In short, Sri Lanka’s competitiveness will come from producing the right graduates. If we link education, industry, and innovation through a data-driven human capital model, we can turn our demographic challenges into an economic advantage.
Sri Lanka’s economy is often said to suffer from low productivity and inconsistent service quality. How should these gaps be addressed?
This is because we have been measuring growth by how many people are employed, not by how much each worker produces. Sri Lanka’s labour productivity – the value of output per worker – is less than one-fourth of Malaysia’s and roughly one-third of Thailand’s, and also less than most of our South Asian counterparts, according to World Bank and other data.
The service sector, which now constitutes over 60% of the GDP, relies heavily on technology adoption, improved management practices, and customer orientation for productivity gains. However, many public and private institutions are slowed down by outdated procedures and rigid hierarchies.
To close this gap, we can certainly learn from our neighbours, such as Singapore’s former National Productivity Council or Malaysia’s Productivity Nexus model. Sri Lanka should create a similar initiative, perhaps a national productivity and service excellence framework which can integrate several levels.
First, at the enterprise level, we need to introduce measures like lean management, process re-engineering, and quality improvement programmes in both manufacturing and services. Then, at the sector level, we must benchmark productivity across industries, publish comparative data, and support lagging sectors with targeted technical assistance.
Also, at the national level, we need to align policies, such as tax, trade, and education policies, to reward efficiency and innovation instead of just expansion.
Productivity isn’t just about performing faster but better. That’s where service quality frameworks like ISO 9001 or Total Quality Management come in. If we can build a culture that values efficiency, innovation, and service excellence, the results will follow.
At the same time, the industry should expand into areas other than just the service sector, or ‘buying and selling.’ Expanding Research and Development (R&D) to be innovative will not only make it more competitive but also encourage entrepreneurship among the youth of the country.
What are the economic consequences of labour redundancy and how should reskilling or redeployment policies be designed?
Overstaffing and redundancy carry a clear economic cost for both the employer and the employee. Consequences include wage bill inefficiencies, low output per worker, and fiscal strain. When governments or state enterprises carry this burden, social costs include prolonged unemployment and wasted human potential.
Effective responses should avoid blunt layoffs and instead focus on smart redeployment and reskilling. Following this, voluntary redeployment packages are needed, transferring workers from overstaffed units to expanding sectors, which should be supported by short, employer-recognised reskilling courses, with wage subsidies during training to reduce income shocks. Other necessary measures include job-matching platforms and mobility incentives such as relocation support and housing assistance.
In the public sector, natural attrition combined with targeted retraining would work better politically and economically than mass layoffs. Economically, well-designed reskilling initiatives have a high return only if the training is demand-led and connected to actual vacancies. The key here is public-private partnership so industry commits to absorbing trained workers.
Looking ahead, what institutional reforms are needed to strengthen the link between education output and labour-market absorption for long-term competitiveness?
This is the big challenge. The solution is institutional, transforming fragmented actors into a coherent skill ecosystem. Key reforms include establishing a national labour market observatory, an independent body that collects real-time vacancy data, skill forecasts, and regional labour indicators to guide policy and training supply.
We need strong tripartite institutions, empowering industry, Government, and unions to negotiate sectoral skills and wage frameworks. Funding reforms should channel public subsidies to outcomes like job placement rather than inputs, and share risk with firms.
Implementing modular, credentialised learning will make qualifications portable and stackable so workers can upskill incrementally. We must also scale up career services and labour intermediation in order to reduce information friction.
Also, establishing regional job centre networks, decentralised to deliver services, will ensure rural youth have access to training and jobs. These institutional changes require political will and cross-ministerial coordination, but the payoff is high.
To what extent does the informal labour market distort national wage structures and productivity assessments in Sri Lanka?
The consequences include underestimated labour productivity at the national level because informal output is difficult to measure accurately. This can also lead to wage compression in the formal sector if informal wages set a low local benchmark, as well as fiscal losses from untaxed income and weak social protection coverage.
Policy should aim to formalise selectively by simplifying registration and reducing compliance costs for micro-firms. The Government should offer phased tax incentives and extend social insurance benefits to encourage transitions. Importantly, formalisation must be paired with productivity support. Otherwise, firms may become formal but remain low-productivity entities.
Does Sri Lanka’s current minimum wage policy reflect living standards and qualifications?
Not fully. Sri Lanka’s minimum wage framework serves a useful social protection purpose, but it’s fragmented and often disconnected from real living costs and local labour market conditions. Minimum wages are set sometimes by statute and sometimes by sector, and enforcement varies, especially between formal firms and informal workers.
In this system, a few issues stand out. First, a uniform statutory minimum ignores regional price differences and household needs. What covers the living cost in a small town may be insufficient in Colombo. Second, minimum wages are rarely linked to skill level or productivity. This means low-skilled but high-productivity workers aren’t rewarded, and skilled workers in low-margin sectors face pressure.
Better approaches combine basic protection with flexibility. We should consider a living wage benchmark, which is updated regularly using a transparent basket of costs, which should be combined with regional and sectoral differentiation so wages reflect local economies.
Furthermore, a two-tier system could be adopted, a statutory floor to protect the most vulnerable, alongside negotiated sectoral minimums set through tripartite councils that reflect productivity and skills.
We could also link wage adjustments to productivity metrics over time, which helps firms plan and keeps wages sustainable. Sri Lanka would benefit from a hybrid model, a national floor plus stronger sectoral bargaining, combined with living cost indexation.
How does sustainability connect to human resource improvement and economic competitiveness for Sri Lanka?
Countries that move early into sustainable production and circular economy models gain access to new export markets, attract green investment, and reduce long-term costs. Our key sectors, such as tea and tourism, already compete in markets where consumers and regulators demand low carbon footprints, ethical sourcing, and waste reduction.
Sri Lanka can start by building a national circular economy roadmap, with several key pillars. These include industrial transformation, green infrastructure and incentives, and education and consumer awareness.
To ensure sustainability becomes a real driver of growth, we must build a system of national sustainability metrics tracking carbon intensity, resource use, and waste reduction, and link them to export competitiveness and investment attraction. The future belongs to economies that can grow without exhausting resources.
If we look at these challenges together, what are the common threads? How can Sri Lanka connect these reforms into one coherent strategy for competitiveness?
All these issues are symptoms of the same underlying weakness – the lack of an integrated workforce strategy.
Sri Lanka has treated education, employment, and productivity as separate conversations, while in successful economies, these are all part of one system where the education pipeline feeds industry demand, and productivity improvements support higher wages and innovation. We lack that foresight mechanism and our systems still react to crises rather than anticipating them.
Workers cannot be productive if they haven’t been trained to use modern tools, or if the workplace culture doesn’t reward innovation. Productivity means managers empower employees, processes are continuously improved, and performance is measured and rewarded fairly. If we can shift from a compliance mindset to a performance and innovation mindset, we will see immediate productivity gains even without massive investments.
The next step, as I see it, is to link this productivity drive with our sustainability agenda. Competitiveness today is also about how responsibly and indicatively we perform. The countries leading the next wave of growth are those combining skills, efficiency, and sustainability into one strategy, and that’s exactly where Sri Lanka needs to head next.