Wage-Leadership in the Higher Education Sector of Sri Lanka: A Case Study of Colombo District

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