Sri Lanka has emerged from the Global Financial Crisis with an unemployment level that many countries would envy. Through some good fortune, war time expenditure, and post-war stimulus spending (construction of new airports, seaports, hotels, roads, houses etc.) etc., Sri Lanka’s unemployment rate now stands at an amazing 5.1% – effectively full employment. According to the CIA World Factbook, this puts Sri Lanka’s unemployment ranking at 50th in the World. Australia is ranked right behind Sri Lanka at 51 (5.2% unemployment), the United States is 98 (8.2% unemployment), Germany is 69 (6.5% unemployment), and China is 67 (6.4% unemployment). But what these figures do not show is how many Sri Lankan’s are employed in superfluous positions, and how much potential Sri Lanka has if it ramps up its productivity.

Everywhere you go in Sri Lanka you see excess employees hanging around. The other day I was in Arpico (one of the largest supermarket chains in Sri Lanka), and four people assisted me at the checkout; one person unpacked my trolly, one person scanned my items, one person packed my items into a bag, and one person placed the bags into a new trolley. This same procedure in other countries requires only one worker, and, increasingly, no workers (Australian supermarkets are rolling out self service checkout’s using computers), not to mention taking considerably less time. But my experience at the checkout was hardly an anomaly. The same supermarket had four people manning two scales in the produce department (another job that in other countries requires no staff), many parking lots still employ people at both the entrance and exit to dispense tickets and collect money, the toll booths on the country’s newly built highways often have two people to man them (instead of one person, or, heaven forbid, a machine), and I can not right now think of a shop I have visited in the past four weeks that didn’t have at least a few employees standing around having a chat (and the examples can go on, and on).

Now, of course there are counter arguments. After all, these businesses are run by rational and experienced businessmen, and there must be some method to this madness. One argument is that labour is comparatively cheap in Sri Lanka, whereas machines are not (plus the country would have to import the machines, and it is currently having trouble with foreign reserves). This is an incentive, at least in the short term, to hire more lower skilled workers. Another good argument is that the casual and part time workforce is a lot smaller in Sri Lanka than it is in places like Australia, the United States and Germany (and these arguments could also go on, and on). This means that more full time workers are working in off peak periods. But these arguments just explain the situation as it is right now. Sri Lanka needs to move towards a future where it is no longer true. Up-skilling employees would of course push up wages, but it would also provide more productivity, more flexibility, and domestic demand.

A similar story can be seen by comparing the output of both Australia and Sri Lanka. While Australia and Sri Lanka have comparable unemployment and populations levels, the Gross Domestic Product of Australia is $1.5 trillion USD and the GDP of Sri Lanka is just under $60 billion. The mining boom in Australia, the war in Sri Lanka, and other factors obviously play a big role in this massive discrepancy. But the services industry alone, in which more than 40% of Sri Lankan’s and 75% of Australians are employed, shows another massive discrepancy; Australia’s services industry accounts for more than $1 trillion of Australia’s GDP, while Sri Lanka’s is just $34 billion. The high Australian dollar and high wages (and the resulting high demand), are obviously some of the drivers of this industry in Australia, but Australia also benefits from employing just one person to do one person’s job, and a vast quantity of people willing to work flexible hours.

But why are Australians more productive and able to receive such high wages? One of the reasons is that Australians are better educated and trained. The school life expectancy of an Australian is 21 years, compared to just 13 years for a Sri Lankan (and just 16 in the United States), and Australia also enjoys higher literacy rates. Some of this can be attributed to government spending. Australia spends a considerable amount on education –  the equivalent of 4.5% of GDP in 2007. The Sri Lankan Government by comparison spends little on education – the equivalent of 2.06% of GDP in 2009. Australians also have lower youth unemployment rate (which leads to greater experience in later life) and departing educational institutions for the workforce later in life also means they are more mature and able to handle complex jobs when they do get into the job market. Australia also has a tremendous skills program, that for a low cost (and sometimes even free) will train people to fulfill the skills the country requires. Students are also the ones who make up the flexible workforce; it is largely the students who work casually and part time, and they are the ones who work in the supermarkets, restaurants, and shops. Australia’s big spend on education, therefore, not only provides people more capability to do jobs, but also assists in providing a more flexible workforce.

Obviously Australia’s current situation is the result of decades of development, and not something Sri Lanka can transplant or copy in the short term. But as Australia shows, great things can be achieved with small populations as long as they are equipped to do the job. Sri Lanka has some incredible resources; incredibly fertile land, beautiful scenery, a wondrous and long history, an amazing location, considerable foreign interest, and of course it’s people. Sri Lanka cannot match Australia’s education spend dollar for dollar, but by increasing the percentage of GDP spend and thereby up-skilling it’s people (which will be helped by a return to English education), and retaining those who are already skilled (see previous posts), all of these resources can be better utilized. Once Sri Lanka better utilizes its resources, especially it’s precious labour resources, the sky is the limit.