Evaluation Of Industrial Strategies Of Sri Lanka Through The Concept Of Outputemployment Gap

Abstract

This paper attempts to introduce the concept of output-employment gap, defined as the real output growth minus employment growth as a novel approach to the Sri Lankan economic literature for evaluating the performance of industrial strategies, particularly employment generation under each major industrial policy regime. Accordingly, the importsubstitution era in the period, 1970-1977 was found to be characterised by a negative output-employment gap which was an abnormal phenomenon, and the article identifies a number of underlying reasons responsible for this behaviour. Then, the study found a positive outputemployment gap for the period, 1978-1989, indicating a more realistic situation with the introduction of the 1977 economic reforms. However, after 1990 the employment-output nexus shows a widening gap which the study recognises as a jobless growth, and taking this phenomenon into consideration, particularly based on the relevant theoretical underpinning, the paper identifies factor market distortions, labour productivity behaviour, and poor spread effects in industries as the major factors which may have contributed to retard employment generation, particularly in the latter part of the 1990 decade. Therefore, the paper suggests directing more research attempts to capture the recent behaviour of these factors to guide policy makers effectively in formulating correct policies to increase labour absorption in the manufacturing industry.