Peradeniya University’s Professor Wasantha Athukorala, from the Department of Economics and Statistical Studies, has emphasized the need for annual wage revisions in relation to inflation. He argues that without these adjustments, the real value of wages diminishes, despite nominal wage increases.
Professor Athukorala explained that if inflation outpaces wage increases, the purchasing power of wages—referred to as the real wage—declines. He stressed the importance of considering not just the nominal salary but also the amount of goods that salary can buy.
The professor pointed out a significant decrease in the real value of salaries in Sri Lanka. He noted that government employees’ real wages have decreased by 36% since 2020, while private sector employees have seen a 20% decline in the same period.
For example, a salary of 50,000 rupees in 2020 has a real value of only 32,000 rupees by February 2024. Similarly, a 100,000 rupee salary in 2020 is worth 64,000 rupees this year, and a 200,000 rupee salary from 2020 has decreased to 128,000 rupees in 2024.
Comparing to 2017, the drop is even more stark. A 50,000 rupee salary in 2017 is now worth only 22,000 rupees in 2024, a 100,000 rupee salary has declined to 44,000 rupees, and a 200,000 rupee salary has fallen to 88,000 rupees.
The decline in real wages has significantly impacted Sri Lanka’s labor market. By the first quarter of 2024, the active workforce in Sri Lanka was about 8,275,184 people. This includes 6,515,083 from rural areas, 1,388,862 from urban areas, and 371,209 from plantations, as reported by the Population and Statistics Department’s labor force participation survey.
Professor Athukorala noted a rapid decline in the country’s labor market. In 2018, the labor force participation rate was 73%. By the first quarter of 2024, it had dropped to 67.2%. The decline is attributed to both the absence of a specific salary structure and the decreasing value of salaries, affecting labor market efficiency and effectiveness.
This decline has also contributed to an increasing number of people leaving the country in recent times, seeking better opportunities abroad.
