# 1 Introduction

Sri Lanka has made significant progress in social and economic development over the past decade, as GDP growth has averaged over 5 percent a year since 2000. This progress is reflected in significant reductions in poverty, amid equitable growth. The national poverty headcount ratio declined from 22.7 to 6.7 percent between 2002 and 2012/13, much of which was driven by growth in labor income (Ceriani et al. 2015). However, progress has lagged in the Northern and Eastern Provinces, where an armed conflict between a Tamil dominated separatist group and the Sri Lankan security forces spanned over 30 years (Sarvananthan 2007). With the end of the conflict in 2009, the Sri Lankan government has made efforts towards reconstruction and reconciliation with the Northern and Eastern Provinces. With a new government elected in 2015, there is a renewed focus on the post‐conflict development agenda as a means to economic revival, social re‐integration, and ethnic reconciliation for these regions.

This paper reviews the state of labor force participation and jobs in the Northern and Eastern provinces of Sri Lanka. These provinces are compared with two other regions: Western Province, which consists of the capital city Colombo and is the most highly developed in Sri Lanka, and provinces other than Western (see Appendix Figure 1 for geographic definitions). Data for this exercise come from the following four sources: The 2011 through 2015 rounds of the Labor Force Survey (LFS), Household Income and Expenditures Survey (HIES) 2012/13, Skills Towards Employability & Productivity Survey (STEP) 2012, and the Enterprise Survey 2011. Differences between these sources are noted in Appendix Table 1. Although each of these data sets has its strengths and weaknesses, taken together they allow a rich examination of various aspects of labor outcomes in the Northern and Eastern provinces.

Low rates of labor force participation distinguish the Northern and Eastern provinces from the rest of the country. Most of the gap in labor force participation is due to extremely low rates of labor force participation of women, although youth and those with lower educational attainment also contribute to this gap. Low participation of women in the labor force is a national issue that has persisted for decades (Solotaroff et al. 2018, Gunewardena 2015), but it is especially pervasive in the Northern and Eastern provinces. Although female employment is very low in these provinces, wages among both men and women are similar to non‐western provinces. We interpret this as reflecting a combination of weaker demand for labor in these provinces as well as social and cultural factors that discourage women from working, which would each reduce employment but would have opposite effects on equilibrium wages. Residents of these provinces (especially, women) score poorly on reading, writing, and numeracy skills, which may contribute to weaker demand for labor in these areas. Households in these provinces have less access to formal finance, which may also contribute to a lack of self‐employment opportunities.

We contribute to the literature on employment in post‐conflict situations by using nationally representative household surveys to conduct a comprehensive stocktaking of labor market outcomes in 2