Around 43% of young Sri Lankans aged 15–24 with post-secondary education are unemployed, according to data presented by the International Monetary Fund (IMF), leading to questions about the gap between educational qualifications and the jobs available in the economy.
At the same time, several industries are reporting difficulties finding workers with the skills they need, creating a labour market paradox where educated young people are struggling to secure suitable employment while employers are facing shortages in certain areas.
The issue also raises concerns about how effectively Sri Lanka’s education system is preparing young people for available jobs and how the mismatch is affecting the country’s economic recovery.
Sri Lanka’s overall unemployment rate also increased to 4% in the second quarter of 2026, according to the Department of Census and Statistics (DCS), up from 3.8% in the corresponding quarter of last year and 3.7% in the first quarter of 2026.
The number of unemployed people was estimated at 340,240 during the quarter, with unemployment higher among women at 6.1% compared to 2.8% among men. The highest unemployment rate was recorded among those aged 15–24, adding to concerns over the difficulties faced by young people entering the labour market at a time when the economy is also dealing with shortages of skilled workers.
Economic implications
Speaking to The Sunday Morning, University of Colombo (UOC) Department of Economics Professor Shashithanganee Weerawansa described Sri Lanka’s labour market as facing a skill paradox. Four in 10 educated young people in the labour market are out of work.
She explained that the apparent contradiction arose because unemployed graduates and vacancies reported by employers did not necessarily involve the same people or the same types of jobs. Employers, she noted, reported that many graduates lacked practical exposure, problem-solving skills, communication and teamwork skills, and digital skills.
At the same time, shortages are appearing in areas including IT, engineering, construction, healthcare, tourism, logistics, and advanced manufacturing. A degree in a field with limited local openings, she said, did not automatically translate into a job such as that of a technician or machine operator.
According to Prof. Weerawansa, the gap is also connected to the preference among many graduates for public sector employment, with long queues for Government jobs where graduates sometimes wait for extended periods rather than entering the private sector. At the same time, fiscal discipline under IMF conditions has limited the Government’s ability to provide public sector employment at the levels seen previously.
Another factor identified by her was the departure of skilled workers for foreign employment, with foreign employment departures exceeding 310,000 per year recently. She noted Central Bank data showing that skilled and professional categories had accounted for 76.5% of departures in the second half of 2025, compared with 66% when the crisis began.
“There are changes in Sri Lanka’s labour force and demographics. Labour force participation has fallen to around 49.2% in 2026, compared with 52.3% in 2019, while an ageing population and falling birth rates are changing the composition of the labour market. At the same time, female labour force participation is still relatively low, meaning that an increase in female participation of even 5–10% could add significantly to the workforce. Many educated women are not participating in the labour market either,” she added.
Prof. Weerawansa further raised concerns about the lack of up-to-date information on labour demand. While Sri Lanka conducts an annual labour force survey, she noted that the country had not updated its comprehensive labour demand survey since 2017. As a result, schools, universities, and training institutions are planning without a clear picture of what employers actually need.
She said this was becoming more difficult as industries changed rapidly, with some traditional roles being affected by Artificial Intelligence (AI) while new jobs were being created. Universities and schools, she argued, could not train students for one fixed job and instead needed to give them the ability to adapt to changing work requirements.
In light of this labour market mismatch, Prof. Weerawansa said that the IMF figures put the problem into perspective.
“According to 2025 data, the unemployment rate among Sri Lankans aged 15–24 with post-secondary education was around 43%, compared with 42% in India and 36% in Bangladesh. However, that figure represents the jobless rate among those who might be working or actively looking for work and does not include every educated young person, since many in the 15–24 age group are still studying and outside the labour force. National definitions of employment and unemployment differ between countries.”
The data shows the burden is highest among younger and more educated entrants. The overall unemployment rate in 2025 was around 3.9%, around 6% among those educated to A/Level and above, and around 19.5% among youth aged 15–24, while the post-secondary educated youth figure was around 43% according to the IMF chart.
Prof. Weerawansa also raised a further issue concerning how unemployment was measured. She pointed out that the definitions used in labour surveys could produce results that did not always correspond with a person’s immediate employment situation. She also noted that some people who were technically counted as unemployed may actually be working in the informal sector.
‘The economy is losing growth twice’
On the impact on recovery, Prof. Weerawansa said that Sri Lanka’s heavy public investment in education had created an expectation that educated people would become productive workers, taxpayers, and innovators.
When graduates remained without work, she said, that investment was not being fully translated into economic output. Unemployment could also reduce tax revenue, while prolonged periods without work could cause skills to become outdated, weaken confidence, and encourage capable young people to seek opportunities abroad.
“The economy is losing growth twice. Once through talent that is not used and once through work that cannot be done. This needs to be fixed.
“From the Government, there are a number of policy initiatives, including micro-credentials, higher education reforms, vocational training reforms, and measures relating to foreign workers and migration. In April this year, the Cabinet approved the formulation of a national policy and framework on micro-credentials with the Commonwealth of Learning, with full financial support. These short, skill-specific courses could provide degree credits based on demonstrated skills, specifically in specialised areas and fields such as the humanities,” she said.
Prof. Weerawansa also noted plans connected to higher education overhaul. These include bond agreements intended to limit the loss of public investment in education through the departure of graduates, as well as the Tertiary and Vocational Education Commission’s (TVEC) 2025–2029 Strategic Plan and the Cabinet-approved Technical and Vocational Education and Training (TVET) Strategic Framework for 2026–2035, which place emphasis on competency-based training, digital assessment, and industry links.
“On foreign employment, in May the Cabinet approved the preparation of a framework to regulate the recruitment and employment of foreign workers, while the Labour Ministry was drafting an inward labour migration policy. There is also the smart migration programme of the Sri Lanka Bureau of Foreign Employment, which aims to send 250,000 workers abroad in 2026, with a focus on higher-paying jobs in safer destinations,” she added.
However, she questioned whether some of these measures were addressing both sides of the labour market at the same time. While Sri Lanka was encouraging workers to seek employment abroad, she noted, domestic industries were reporting shortages.
At the same time, discussions about retaining workers are taking place while public sector real wages still remain below pre-2022 levels. She also noted criticism that macroeconomic stabilisation had taken priority over employment creation, although maintaining macroeconomic stability was necessary for attracting foreign direct investment.
Commenting on the way forward, Prof. Weerawansa said that education and skills systems must respond more closely to changing labour market requirements.
She highlighted the need for a fresh national labour demand survey, shorter industry-linked programmes for graduates, and real workplace exposure while students were still completing their degrees, rather than internships that did not necessarily provide practical experience. She also highlighted the importance of wages and working conditions that would give skilled workers a reason to stay.
“Unless this paradox is solved, Sri Lanka will keep paying twice – for graduates the country cannot employ and for jobs the country cannot fill.”
Govt. solutions
Commenting on the Government’s role from the labour administration side, Ministry of Labour Secretary S.M. Piyatissa told The Sunday Morning that the 43% figure and its specifics could not yet be confirmed without knowing exactly how it had been calculated.
He noted that under normal conditions, unemployment in that category was generally around 25–30%. One factor behind this, according to him, is that their expectations regarding salaries and working conditions are higher and because some qualifications still require prior experience before employment.
Piyatissa said that the ministry was addressing the issue through the Department of Manpower and Employment and its Public Employment Services (PES) Division, which matched candidates with employment opportunities. Around 65,000 people registered with the service in a given year, he said, with reported placements of around 25,000–30,000 people in jobs, although feedback on the remaining registrations was not always received.
“Alongside job matching, the department provides career guidance and assesses individuals for job requirements, after which those needing vocational training or soft skills development are connected to relevant programmes.
“There are also larger changes affecting employment, including the impact of the situation in the Middle East on supply chains and job creation, as well as the impact of AI on sectors such as IT. In sectors where the number of jobseekers is high, the ministry is also encouraging self-employment through programmes under the Department of Manpower and Employment, alongside other Government initiatives and loan schemes,” he said.
At the same time, Piyatissa also acknowledged the continuing mismatch between unemployment and skilled labour requirements.
He identified construction as one area where employers were looking overseas because those residing in Sri Lanka were not applying for certain jobs, sometimes due to perceptions surrounding those occupations. The ministry is therefore working to develop such jobs as formal sector employment with benefits including Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF), while also running a programme for the care sector.
In fisheries, including shrimp farming, he said that more than 60 workers had recently been brought from India because employers had reported a shortage of people with practical experience locally. In the hospitality sector, demand for workers has increased as tourism has grown, while Sri Lankan workers are simultaneously leaving for overseas employment, partly because of higher salaries.
Piyatissa said that Government programmes were therefore being used to direct people towards sectors where workers were needed.
Labour market concerns
Meanwhile, Free Trade Zones and General Services Employees’ Union General Secretary Anton Marcus said that the rise in unemployment could directly affect the labour market and collective bargaining. With a larger pool of unemployed people, he said, employers would have more options when bargaining over wages and working conditions, which could weaken workers’ positions.
Marcus also questioned the contradiction between rising unemployment and reports from companies on employee shortages and the lack of a clear plan to attract new investment.
“The absence of new industries could contribute to a further increase in unemployment. At the same time, some brands have started shifting out of Sri Lanka because of high production costs, with companies able to move orders to other countries where costs are lower,” he said.
Marcus also raised concerns over the distribution of orders among small and medium-sized factories. He said this created difficulties for smaller factories that had relied on the quota system to manage their operations.
With these industry concerns, he noted increasing production costs caused by fuel and electricity prices, as well as the increase in the cost of living faced by workers. He added that these issues were also affecting workers’ morale and, in turn, productivity.