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Sri Lanka's population is predicted to age very fast during the next 50 years, bringing a potential slowdown of labor force growth and after 2030 its contraction. Based on a large and detailed survey of old people in Sri Lanka, conducted in 2006, the paper examines labor market consequences of this process, focusing on employment outcomes of old workers and the reasons and determinants of labor market withdrawal. The paper finds that a vast majority of Sri Lankan old workers are engaged in the informal sector, work long hours, and are paid less than younger workers. Moreover, using hard evidence, it shows that labour market duality characterizing most developing countries carries over to old age: (i) previous employment is the most important predictor of the retirement pathway; (ii) older workers fall into two categories: formal sector workers, who generally stop working before age 60 because of mandatory retirement regulations, and casual workers and the self-employed, who, due to poverty, work till very old ages and stop working primarily because of poor health; and (iii) the option of part-time work is used primarily by former formal sector workers.

This study describes different uncertain, insecure, and unstable working arrangements experienced by workers in Sri Lanka. Findings show that most informal sector workers experience precarious employment. The main types of precarious workers are temporary or contractual workers who work in the formal sector. Faced with competition, and in their attempts to cut costs and increase productivity, employers pressure workers to produce better goods, faster. Also, to adjust the workforce to meet the fluctuating demand in the market at lower cost, workers are given temporary or contractual contracts, so that their work is easily discontinued. The insecurities and instabilities of these workers come from several sources. First, they are deprived of some of the protection afforded by labor legislation because they do not have a permanent contract, and they have to constantly look for alternative work. Second, the intense nature of the work they are exposed to can increase their risks to different adverse health conditions. Poor health and lack of a permanent job can adversely affect their income-earning potential. Third, being temporary workers, they have fewer interactions with labor unions. Better information on the size and trends in precarious employment needs to be systematically collected so that policy makers will be better informed of the issues relating to precarious work in Sri Lanka and can initiate informed initiatives to improve the situation.

Sri Lanka has made substantial progress in reducing poverty over the past decade. However, important social and economic development needs persist at a time when revenue collections have been disappointing, reducing the government's ability to expand spending. In this context, this paper has sought to evaluate the effectiveness of fiscal policy in addressing inequality and accelerating poverty reduction. The exercise consisted of undertaking incidence analysis of the major tax and transfer programs individually, and then combining them to evaluate the incidence of fiscal policy as a whole. Although we could not carry out incidence analysis of all budget items, we have analyzed the major tax and spending items for which individual tax and benefits can be assigned to households using microdata. The analysis finds that taxes and social spending were redistributive and poverty-reducing overall. However, given the country's relatively low revenue and the limited fiscal space, overall social spending was small, leading to very limited impacts. On the spending side, direct transfers are absolutely progressive, so that their marginal contribution is both equalizing and poverty-reducing. In contrast, spending on indirect subsidies increased with a large part of the resources benefiting nonpoor households. Finally, the analysis found that inkind transfers in the form of education and health are equalizing. Going forward, any efforts to reform taxes could usefully include distributional analysis to assess their impact.