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SL Rs 14,457 (DCS 2008). During the program, graduates also undergo job search, information technology, and English language training. When introduced in 1997, the program was aiming to provide placements to 10,000 graduates over a period of five years. In their efforts to secure political support and fulfill election campaign promises, governments often offer civil sector appointments to graduates. The political motivation behind regular large-scale recruitments is evident from the fact that such recruitments often mirror electoral cycles. In 2005, for example, the government recruited 42,000 graduates, initially hiring many of them as temporary workers for a salary of SL Rs 10,000, and giving them training. The recruits have subsequently been absorbed into the permanent workforce. Before 2005 recruitment of public sector employees had been frozen for about three years. Sri Lanka’s severance pay system, embodied in the Termination of Employment of Workmen Act (TEWA) introduced in 1971, is one of the most restrictive severance pay systems in the world. The TEWA system not only calls for high compensation to the laid-off workers, but its discretionary nature and lengthy procedures further restrict the ability of employers to manage their employment needs. Compensation formulas introduced in 2005 reduced the nontransparency and arbitrariness of the firing process, but separation costs remain extremely high by international standards, the process of separation still involves “prior approval” by the labor commissioner, and arbitrariness and lack of transparency are still significant problems.1 It has long been asserted that TEWA’s opaque, discretionary, and costly regulations discourage employment growth. There is growing evidence that TEWA regulations discourage employment growth in formal firms and have particularly adverse implications for access to formal jobs by young people. For example, chapter 2 points to the TEWA system as a likely source of Sri Lanka’s depressed job flows. Moreover, using 1995–2003 panel data for all Sri Lankan private, formal sector firms, Babatunde, Orazem, and Vodopivec (2009; see also chapter 2) find that firms at or below the threshold of 14 workers (the employment level under which the TEWA system does not apply) are less likely to increase employment compared with firms above that threshold and that an exceptionally large productivity shock is required to cross the threshold. These findings suggest that the TEWA system, designed to preserve employment, has the opposite effect of slowing down employment growth—and because of their lack of experience, young workers are likely to be particularly affected.