How Sri Lanka’s Informal Youth Economy Risks a Lost Generation

Across Sri Lanka, a silent economic pattern is taking root. A significant portion of the country’s youth, armed with little more than ambition and necessity, are entering self-employment through basic service sectors. Leasing a three-wheeler to work in the informal taxi business or setting up a makeshift takeaway food outlet has become a common path to survival. While on the surface this trend may appear entrepreneurial, it is, in truth, a fragile and unsustainable model that threatens to create an economically insecure generation and long-term social instability.

These micro-enterprises are often mistaken as a sign of entrepreneurial vitality. But they are typically born out of desperation rather than innovation. Without formal business training or access to knowledge on market differentiation and competitive advantage, most of these ventures become repetitive and stagnant. Many small food vendors, for example, offer near- identical menus: fried rice, kotthu, and basic curries. The market is saturated, margins are thin, and survival is dependent on daily footfall rather than strategic growth.

This form of self-employment traps many young people in a cycle of economic precarity. They do not acquire transferable skills, industry experience, or exposure to structured workplace environments. When their businesses inevitably collapse due to overcompetition, rising costs, or lack of scalability, they are left with little to fall back on. By the time this happens, many are well past the age where re-skilling or entering a professional industry is easily achievable.

The Making of an Economic Underclass

The result is an underclass of informal entrepreneurs, economically vulnerable and socially isolated. This group lacks representation, job security, and often basic protections such as insurance, pension schemes, or access to credit. With limited income mobility, they remain trapped in low-value economic activities.

But the consequences go beyond individual hardship. A widening gap between these youth and their peers in formal employment or international careers fuels resentment, social alienation, and unrest. The disconnect deepens when these young workers, who have never operated under a supervisor or within a team, begin to reject hierarchy, structure, or protocol in any context. This creates a dangerous erosion of respect for institutions, order, and authority.

More critically, the informal youth economy contributes little to national productivity. Most of these ventures do not generate export income, do not contribute to innovation, and do not help develop competitive industries. They exist purely in a consumption loop within the domestic economy. Meanwhile, Sri Lanka suffers from a shortage of skilled labor in industries that could earn foreign exchange, such as ICT, logistics, engineering,
manufacturing, and tourism.

This mismatch means that a large portion of the country’s most able-bodied population is not participating in sectors that could lift GDP or improve the balance of payments. Instead, the country faces a paradox, rising youth engagement in economic activity that neither builds the nation nor secures their own future.

As a result of this social consequences are increasingly visible. Marginalized youth without a sense of purpose or social mobility often become easy targets for drug use, gang affiliation, or other forms of anti-social behavior. Disconnected from broader civic responsibility or national progress, their alienation spreads into disillusionment and, in some cases, hostility towards institutions.

There is also a psychological toll. Constant economic instability and competition breed anxiety and erode mental health. Young people who fail in these ventures often internalize the failure, leading to long-term emotional damage and cycles of poverty that pass from one generation to the next.

Policymakers must urgently recognize the long-term implications of this growing informal youth economy. A robust, multi-pronged response is essential.

First, education systems must include modules on entrepreneurship that go beyond the romanticism of being your own boss. Curriculum reform should introduce real-world business knowledge such as market research, cost analysis, branding, and financial planning.

Second, vocational training should be tied to industry demand. Sectors like digital services, green energy, agri-tech, and advanced manufacturing should be promoted as pathways to stable careers. Public-private partnerships can help youth gain apprenticeships in high- potential sectors.

Third, microfinance programs need to move from mere capital provision to mentorship-based incubator models. Without guidance, access to credit may only deepen financial risks. Fourth, national productivity campaigns must highlight the dignity of formal employment and skilled labor, countering the false allure of informal self-employment as a sustainable option for all.

This also calls for a cultural shift. Respect for protocol, hierarchy, and teamwork must be cultivated through both education and social programs. The value of shared responsibility, institutional thinking, and collective growth must be reinstated in our youth culture.

If left unchecked, the current trajectory will not only leave a generation economically stranded but will also fracture the social fabric of the nation. Instead, Sri Lanka has an opportunity to redirect its youthful energy towards industries and opportunities that are future-focused, export-oriented, and globally relevant.

We must not mistake survival for success. True entrepreneurship is rooted in innovation, value creation, and sustainable growth. It is time to help our youth build not just a livelihood but a legacy.

The future of Sri Lanka depends on the kind of opportunities we create today. Let us make them count.