Sri Lanka Minimum Wage Rise Met With Concern, Skepticism
Despite awaiting what is just a final formality of the O.K. of a 40 percent increase in minimum wage cleared by the cabinet last week, workers in Sri Lanka are not pleased.
“While this may help workers in some parts of the informal sector, it doesn’t really help us,” an apparel factory worker just outside Colombo told Sourcing Journal.
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The minimum wage in Sri Lanka, at 12,500 Sri Lankan rupees ($41.65) will rise to $17,500 Sri Lankan rupees ($54.32). Along with the 3,500 Sri Lankan rupee ($11.66) Budgetary Relief Allowance—which is already added to the present monthly wage—minimum wages will increase to 21,000 Sri Lankan rupees ($69.98) a month.
Factory owners told Sourcing Journal that the increase in minimum wage “does not really have an impact in the apparel sector as most employers already pay starting salaries that are far higher than the minimum wage.”
Yohan Lawrence, secretary general of the Joint Apparel Association Forum (JAAF), observed: “Our position is that our companies are already paying the best they can, and well above the minimum wage. However, this will help the employees who work in the informal sector and work with local markets.”
He added that the minimum wage change does not mean that every pay scale will increase accordingly.
Wage increases have been a sore point for both labor and employers over the past years, given the tough economic backdrop since 2022 when Sri Lanka declared bankruptcy, went into negative foreign debt, saw a political crisis and change of president and continued to face spiraling inflation.
A loan from the International Monetary Fund (IMF) has meant tough economic reforms which have included a cut of subsidies, including those on gas and electricity—sending prices—and expenses skyrocketing.
As workers met to discuss the issue on Sunday, it was clear that their earlier hope that the numbers would be closer to 26,000 Sri Lankan rupees ($86.65) which had been proposed in 2022 is not in the cards.
“The cost of living is very high, and because no one is willing to work for less, the factories have already been recruiting at a minimum of 18,000 Sri Lankan rupees ($60). But how can they live within that amount? Many are migrant workers, mostly female, mostly breadwinners. Some companies are offering an attendance bonus, but if you are absent even one or two days you lose that bonus, too,” said Anton Marcus, joint secretary of the Free Trade Zones & General Service Employees Union in Sri Lanka.
“We have decided to reject this 40 percent increase of the national minimum wage—we want to expose that this is misleading propaganda,” he said.
While rumors of many factories being shut down in Sri Lanka already percolate, Lawrence puts it differently.
“There has been a reduction in volumes, a scaling down of factories who have not replaced employees who have left, or relocating them to other areas. Overall, the capacity of the industry would have scaled down by 10 percent,” he said.
According to figures from JAAF, apparel exports were down by 18 percent in 2023, touching $4.53 billion, declining from the $5.6 billion in 2022.
The causes that led to the slowdown remain—geopolitical tensions, a global economic malaise and the economic situation within the country. But Lawrence pointed out that “there has been a slight upward trend in the first two months of 2024.”
He observed that Sri Lanka was on “a path to recovery” and that it would be “another year or two before things could settle.”
“It would be wrong to say everything is fine, because inflation is very high, prices are high, and structural adjustments are being made on a long-term basis. There are some difficult pieces here, but there is progress, and clearly we are moving in the right direction,” he said.
Industry analysts agreed that Lawrence was not wrong in his optimism. The steep decline of the Sri Lankan rupee has stemmed and changed direction, appreciating by 4.4 percent against the US dollar by end-February according to the Central Bank of Sri Lanka. Inflation has also seen a dip, and hovered around 5.9 percent in February, from its increase of 70 percent in 2022, and although GDP growth had dropped to -7.8 percent in 2022, and -3.0 percent in 2023, it is projected to turn positive, to 1.7 percent in 2024.
Last year, several global organizations urged brands sourcing from Sri Lanka to ensure—and where necessary provide—financial support to their suppliers so that Emergency Relief Allowance payments of 10,000 Sri Lankan rupees are applied to all workers in their supply chain.
“The garment industry is Sri Lanka’s principal export industry and source of foreign exchange, representing 52 percent of Sri Lanka’s total export revenue in 2021-2, and employs approximately 350,000 workers, many of whom are internal migrants and women, as well as the primary support of their families in the villages,” a brief put out by a coalition of unions and labor rights organizations within the Clean Clothes Campaign network, including the Clean Clothes Campaign International Office, the Free Trade Zones and General Service Employees Union, the International Union Educational League, Labour behind the Label, Maquila Solidarity Network and War on Want noted.
