ANALYSING EARNING DIFFERENTIALS BETWEEN PUBLIC, FORMAL PRIVATE AND INFORMAL PRIVATE SECTOR WORKERS DURING THE ECONOMIC DOWNTURN IN SRI LANKA (A COMPARATIVE STUDY BETWEEN 2017 AND 2021)

Abstract

The purpose of this research is to study the earning differentials of public and informal private sector workers with formal private sector workers during the economic downturn in Sri Lanka with a comparison between the two years of 2017 and 2021. A sample of 28,895 employed in 2021 and 32,608 employed in 2017 used for the analysis were taken from the secondary data of the Sri Lanka Labour Force Surveys conducted by the Department of Census and Statistics in Sri Lanka. The study used the Endogenous Switching Regression Model for analysing the earning differentials between two groups (between Public and formal private sector workers and between informal private and formal private sector workers) for two years, while taking the formal private sector workers as the key comparison group. The paper found that the years of schooling, age, age square, gender, residential area and occupation are the key factors related to the earning differentials of workers in the model. Relying on the gender gap, earnings of informal private sector workers have increased in 2021 in comparison to formal private sector workers, although the earning differentials by gender have reduced for other sectors. Shifting employment from the public sector to the formal private sector reduces the gender specific earning gap in 2021. The professional and non-professional earning gap was increased mainly for formal private sector workers. Shifting employment from the informal private sector to the formal private sector leads to higher earning differentials than shifting employment and vice versa. Although earning increased for all of the above sectors during the period from 2017 to 2021, the earning gap has reduced for many

sectors. Structural changes in working culture with working online during the crisis- affected period reduced disparities in the job market in both aspects of work

involvement and earnings. Possible policy implications to maintain parity in earnings are proposed as the final contribution of the study.