Abstract
Sri Lanka’s economy has undergone significant structural changes during the past two decades. The manufacturing and services sectors show a considerable growth during this period and these changes in the economy seem to have had a greater influence on domestic agriculture. Sri Lanka’s rural areas have witnessed the co-existence of rising wage rates of domestic agricultural sector workers with relatively high unemployment levels. The real price of agricultural output shows a declining trend while the real wage rate in domestic agriculture shows an increasing trend. This study examines the influence of the expansion effect of non-agricultural sector on the real wages of the domestic agriculture during the post reform period. Engle and Granger methodology is used to determine the relationship between real agricultural wage rates, capital formation in non-agriculture and wage rate of export agriculture. The results indicate the presence of a long-term relationship between wage rate and capital formation in the non-agriculture sector. Increase in labour productivity, suitable farm mechanization and institutional changes related to land and labour would help to mitigate the negative influence of rising wage rates on domestic agriculture. DOI: http://dx.doi.org/10.4038/sjae.v6i1.3472 <em>SJAE </em>2004; 6(1): 82-97
Highlights
The unemployment rate in SriLanka has been quite high and solving unemployment is an important policy objective of every government
The results indicate that an increase in capital stock in non-agriculture by 1 percent will increase the real wage rate of agriculture by 0.17 percent
This study examines the influence of the economic environment on real wages of the DAS during the post reform period
Summary
Lanka has been quite high and solving unemployment is an important policy objective of every government. It outlines the structural factors that affect the demand and supply of casual workers and found that the wage rates were positively related to the inequality of land distribution, cropping intensity and tenancy and negatively related to the production uncertainty and the proportion of agricultural wage labourers. Richards and Patterson (1998) used this argument to explain labour market disequilibrium that agricultural workers, once induced to move out of the non-agricultural sector, are hesitant to return even though the relative returns to doing so may make such a move rational. Seasonal wage rates can conceal the fact that in some seasons there is no work and wage data do not indicate the overall labour availability or the relative scarcity of labour They suggested dividing the sectoral income by sectoral labour force to capture the employment situation in agriculture to a large extent. This indicates the degree of land fragmentations owing to demographic pressures and gives an indirect measure of workforce that remains in agriculture
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