Trade Liberalization and Wage Inequality: The Case of Sri Lanka

Abstract

The main purpose of this paper is to analyze the impact of trade liberalization on wage inequality in Sri Lanka. For this purpose, both micro and macro level labour income and wage data were used. After explaining the special features of the economy, attempts were made to examine wage trends and causes of inequalities in terms of ownership of firms, gender, occupation, skill levels and sector of production. Mean income of the male legislators, senior officials and managers was two times higher than the national average income and females in the same categories. Generally, real wage increases in exporting sector in comparison to other sectors and number of government employees decline with trade liberalization activities. Sri Lanka has shown contrary situation during the past 30 years. On the other hand, longitudinal analysis on sectoral wage inequalities indicated an increasing wage gap among the income earners in different economic activities, and also by gender, and skill levels. Male-female wage gap has been widening in many occupational categories that were associated with tea, rubber, and coconut producing sectors. However, skill level has been recognized as an important factor in determining wage gap in construction sector. Wage behavior has been favorable for strong labour union members, politically influential groups and a limited number of professionals in some fields or industries. Finally, high inflation rate led to decline real wages and that has been acted as another major (push) factor contributing for massive increase of Sri Lankan migrant workers in other countries, regardless of gender, sector, occupation, skill level or professional category of employee in Sri Lanka.