Per Capita Income and the need for a National Wage Policy | Sunday Observer

Per Capita Income and the need for a National Wage Policy

9 December, 2018

The Economic cost of strikes and street protests are on the increase, and most of these are politically motivated. Strikes, are the legitimate right of employees, in any democratic country.

The eight million employees in Sri Lanka account for about 38 percent of the total population. This means that for every two persons employed, they have to maintain five unemployed people (keeping in line with our ‘dependency syndrome’).

With a negative Trade Balance and Balance of Payments (BOP), increased exchange rates, growing unemployment, increasing inflation, almost double the value of exports to imports, and total borrowings exceeding 90 percent of the GDP, the frustration of the employed is understandable.

Ironically, the plight of employers too has to be understood - having to secure their market share in the international marketplace amidst fierce competition under these weak economic indicators. Accordingly, a need is emerging for the trade unions to be ‘organisational centric’ leaving behind political interests.

‘Killing the goose that lays the golden egg’ to become rich quick, is futile. This is not the time to fight for conditions of employment but to secure employers until the economy recovers, in short, an improved system is required to keep politics and economics separate from each other with clearly demarcated boundaries.

The state and the trade unions have to work together to strengthen the employer with the national economy as a top priority. A provision declaring that ‘the union shall not have any political objects or political fund within the meaning of section 47 of the ordinance’ may be introduced to the amended Trade Union Act of Sri Lanka that may be applicable to all TUs including both private and the State sectors.

A well-developed wage policy is one of the effective solutions we propose, to address the gap that is anticipated. This intervention is merely to be proactive and addresses a pressing need as well. The four institutions, to which this appeal is made, may in turn assist the TUs to understand their roles and also assist them with acquiring new competencies and technology to uphold professionalism.

The sudden emergence of a wave of protests and strikes that has continued for the past three years, (not only by employees but also by University students as well), paint an extremely poor image of the business climate, in the eyes of foreign investors who are interested in setting up their businesses in Sri Lanka (for whatever strategic reasons).

Business processes

When continuous business processes are disrupted frequently due to conflicts, the economy start spiraling downwards. Then it becomes a vicious cycle, whereby attracting and retaining better talent becomes an impossible task.

Instead of attracting and retaining, such an unfriendly climate encourages migration of talent, thus leaving the ‘duds’ to steer the country. The current economic deteriorating of the country demands intelligent and strategic interventions through knowledgeable and competent individuals.

To attract and retain such individuals, the Per Capita Income (PCI) levels of employees have to improve greatly. It is a happy and contended workforce, which will take either a country or an organisation to the next level.

All must understand this emerging need and work towards a unanimously agreed ‘growth’ goal on a well-designed game plan. We have no time to waste with two giant economies on either side of us, growing.

If we assume that the man days lost due to strikes is an outcome of accumulated and unresolved grievances of employees, then, the increased number of man days lost, year after year, due to strikes (as shown in Table 1) indicates that there are unresolved employee grievances in the Private Sector as a whole and in the Plantation Sector in particular.

Tables 2, 3 and 4 show the changes in global per capita income and contribution to GDP by sector, and the relationships in changes in per capita income in selected countries in the Asian Region, for understanding the dynamics in per capita income and sectoral contribution to GDP.

Many global level research studies have concluded that wages do matter in better quality job outcomes such as, higher labour productivity, employee motivation, attraction of better talent, lowering absenteeism and turnover, work stoppages, poor levels of job engagement, reducing hiring cost of new employees and security related issues.

The World Bank Development Report (2015), citing numerous Field Studies, recognises that ‘poverty’ taxes people’s mental capacities and self-control, which demotivates high performers. In Sri Lanka, the plantations sector accounts for the highest number of man days lost due to strikes during the period 2003-2016, within the entire Private Sector of the country.

Accordingly, it is an economically credible and worthy hypothesis to assume that there is a direct co-relationship between the wages and outcomes of grievances, which in turn affect the Economy.

The minimum wage is around Rs. 13,500 per month in Sri Lanka which works out to be Rs.540 per day. Minimum wages have been defined as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreements or an individual contract.

The collective bargaining process has been used always to increase the ‘minimum wages’ by many times to enter an upper wage zone known as ‘collective bargaining zone’. (General wage fixing convention, 1970). Nineteen wage boards have revised the minimum wages applicable but almost all the minimum wages are around Rs.13,500 per month.

There is a vast disparity between theory and practice. Don’t forget the same in minimum wage/living wage aspects as well. According to Professor of Economics, M. Sinnathamby of the University of Peradeniya, (in 2018), the livable wage of a tea plantation worker is Rs. 1,108 per day provided the employee is allowed to work at least 25 days per month.

The manual grade employees spend most of their earnings on carbohydrates to generate energy, whereas most of the monthly salary earners spend most of their earnings to build a house and for the betterment of their children.

It’s our opinion that the minimum wage of Sri Lanka is not used to develop a happy employee but to attract FDIs (by letting them exploit our labour) and as a mechanism to create jobs for name’s sake.

For example, the plantations industry (not the smallholder sector) had approximately 300,000 employees in 1993 and the number has greatly reduced to approximately 160,000 employees by 2017. This has created a huge shortage of labour within the industry managed by the Private Sector.

This affects profitability, and export revenue in US dollar terms.

The ‘livable wage’ which denotes, a wage that fulfills families’ basic needs including a moderate diet, decent housing and education, sufficient health care, desirable social and cultural life (on par with the national standards and current levels of Socio-Economic development in the country), appears to be a more useful and relevant wage index to consider.

The percentage difference between the livable wage and minimum wage in UK is 13% and in the USA it is around 84% but for different reasons. Ours is an issue of survival. That’s why we are asking for a wage policy instead of looking at the two indicators.


A wage policy can be defined as a government policy setting wages and wage increases for workers. We are facing many social issues such as mothers leaving their families for jobs as housemaids, and increased crime etc. These are due to wage related anomalies.

There are three main principles that govern wage and salary fixation - External Equity, Internal Equity, and Individual Worth. ‘External Equity’ principle ensures that jobs are fairly compensated in comparison with similar jobs in the labour market. A Manager in company A can be compared with a Manager in company B doing similar jobs and holding similar responsibilities with the same qualifications, when setting wage levels.

If we consider the job of teaching as an example, then the ‘Internal Equity’ refers to establishing of wage levels of the teachers (Professor, Proof Reader, and Lecturer) that are different as per the perceived or real differences between the values of jobs they perform. Once the wage category is established then it has to be subdivided to arrive at a reasonable point of remuneration depending on the pay grade

‘Individual Worth’ refers to ‘pay for performance’.

Thus, the compensation system, as far as possible, enables the individual to be rewarded according to his contribution to the organisation. However, it is doubtful if the three policies have been correctly used to determine a livable wage, in Sri Lanka. The main objective of wage and salary administration is to establish and maintain an equitable wage and compensation system. This is so because only a properly developed compensation system creates an enabling work environment. Such a positive vibe is essential to execute the strategies of the organisation effectively.

So much so that the role of the government is to set a National Wage Policy framework to create an enabling and conducive work environment, and take the country to the next level rather than selling the manpower of the country by promoting ‘the cheap labour of Sri Lanka’. It is absolutely essential to infuse the latest technology, skilled labour and export value added products, if we hope to improve the GVA of the agriculture sector.

All these shortcomings can be addressed through formulating a rational and competitive wage policy based on labour demand and supply and productivity levels that won’t change with the changing political ideologies.

The idea of getting back to the former Permanent Secretary system and developing a national Wage Policy, emerge as a top priority to make the country an advanced economy. Sri Lanka has an abundance of high value resources compared to a country such as Japan that has frequent natural disasters and limited resources. Yet, the PCI in Japan was more than US $38,000 in 2017.

This means that the benefits of planned economic development should be distributed among the different sections of society. Such a foundation is needed to develop the minimum wage of any industry. The National Human Resources and Employment Policy for Sri Lanka can be made use of to develop the National Wage Policy.