Abstract:
This research examines the earning differentials among workers by job sectors
during the economic downturn in Sri Lanka by comparing the two years of 2017
and 2021 to observe the structural influences of the economic crisis on the labour
market. Secondary data from the Sri Lanka Labor Force Surveys in 2017 and
2021 conducted by the Department of Census and Statistics were used for this
study. This paper used the Endogenous Switching Regression Model to analyze
the data (between Public and formal private sector workers and between informal
private and formal private sector workers) for two years. The study has revealed
that the years of schooling, age, age square, gender, marital status, residential
area, and occupation are key factors of workers’ earnings. The results show that
the informal sector workers are relatively better off. In comparison, formal
private sector and public sector workers are worse off regarding earning
differentials in 2017 and 2021, mainly in the gender and residential aspects.
Shifting a worker from the informal sector to the formal sector causes to decrease
in predicted earnings while it works vice versa for moving from the formal sector
to the informal sector during the crisis. This would encourage highly skilled,
educated human capital to brain drain due to the insufficient rate of returns to
their education. The gender earnings gap for formal sectors has narrowed in
comparison to the informal sectors from 2017 to 2021. Structural changes in the
working culture after Covid-19 with online working platforms have a greater
impact on reducing disparities in gender-specific earnings in the labor market.
Possible policy implications for maintaining optimal earnings differentials in the
Sri Lankan labor market were suggested as the final contribution of the study.
