Abstract:
Irrespective of whether the government acts as a wage leader placing pressure on the wages
in the private-sector of the economy (those that are more open for competition) or otherwise,
there are important implications of it for macroeconomic activities, particularly in small
open economies like Sri Lanka. With the notable exception of the case of Scandinavian
countries, opinion on this issue is still divided. Hence, the aim of this study is to investigate
whether wage-setting in certain sectors of the Sri Lankan economy affects wage-setting in
other sectors. This paper examines the wage formation in the public and private-sector for
higher education while focusing on the causal twoway relationship between public and
private wage setting, thus examining whether there is a wage-leadership in the higher
education sector of Sri Lanka.
A comprehensive literature review was carried out around wages, models and theories
pertaining to wage leadership supported by wage and academic transition patterns observed
in recent history. In view of the fact that similar study has not been conducted in Sri Lanka
previously, it derives the theoretical arguments adopted in studies based on the Theory of
Wage Leadership of Aukrust (1970) derived from the “Scandinavian Model” of inflation
and the Calmfors-Drifill hypothesis (Calmfors & Drifill 1988). According to the theory of
wage leadership, changes in the level of the real wage in the sector acting as the leader cause
changes in the wages of other sectors’ in the same causing labor transition across sectors in
the economy. Derivation of the variables for the study was conducted by collecting data and
information from a pilot survey conducted in Sri Lankan public universities and private
sector institutions of advanced learning. A questionnaire survey was conducted amongst the
different levels of functionaries from private sector institutions of advanced learning while
data for the functionaries from the public sector were gathered from various official sources.
Further, the data related to inter-sectoral academic mobility was gathered by taking the
number of hires from one sector to another during a particular period of time.
The study suggests that at a general level, the private sector institutions of advance learning
play the role of wage leadership in Sri Lanka and the public sector institutions (i.e. the
universities and technical institutions) lag behind. Wage leadership was determined by the
permanent academic transition between the public and the private sector. The functionaries
of the universities and the private sector institutions of higher education were grouped into
several categories i.e. professors, senior lecturers, lecturers, probationary lecturers, and
International Conference of Sabaragamuwa University of Sri Lanka - 2017
Copyright © ICSUSL-Sabaragamuwa University of Sri Lanka 2017 180
assistant lecturers. Then the wages were calculated on the basis of their direct pecuniary
wages, perks, and other benefits. It is also evident that the wages in both sectors do not
converge to a mutually agreed wage in the long run as to attract more staff; the private sector
always attempts to keeps its salaries at a comparably higher level. When the changes of
wage patterns and the periods of said changes made in both public and private sectors were
considered, it is also evident that the changes in government wages cause changes in private
sector wages. These findings demonstrate that although the government is placing an
indirect pressure on wages of the private sector, the academics in the public sector moves to
private sector permanently or partly for better prospects, justifying the wage leadership in
the private sector institutions of advance learning
