IMAGE: RINA
Each year roughly half a million young Nepalis come of age, and only a lucky few find work worth doing. The official unemployment rate, at 12.6%, seems manageable; the real figure, if one counts the idle and the underemployed, is closer to a national condition. Nearly two-thirds of working-age citizens neither work nor seek to. Four-fifths of those who do toil informally—often unpaid, always underpaid.
That makes for an odd contradiction: a country that dreams of employing its people survives by exporting them. Remittances from abroad now make up a quarter of GDP (among the highest shares in the world), financing household consumption and a frothy real-estate boom. In 2024 alone more than 800,000 Nepalis left on labour permits, mostly for the Gulf and Malaysia. Their absence keeps families afloat yet hollows out the domestic economy. “We are running the country with other people’s sweat,” says a labour economist at a big INGO in Kathmandu.
Wasted minds
The human cost is measurable. On the World Bank’s Utilisation-Adjusted Human Capital Index—which tracks how much of a person’s potential productivity is realised—Nepal scores just 0.18. A child born here today will, on average, achieve only 18% of their potential output as an adult, well below India’s 0.49 and Bhutan’s 0.60. Economists estimate that if the country could fully employ its educated population, GDP per person could rise more than fivefold.
The rot is institutional. Between 2010 and 2018 fewer than half of new labour-market entrants found any job. Those who did were mostly absorbed into low-productivity activities such as subsistence farming and petty trade. The formal sector—some 1.2m jobs in total—has barely expanded in a decade. Among the young, the “NEET” rate (not in employment, education or training) hovers around 35%, far above the South Asian average.
If male joblessness is an economic concern, female inactivity is a developmental one. Only one in four Nepali women works for pay, the lowest participation rate in South Asia apart from Afghanistan. Those who do are held back by the absence of childcare, safe transport and flexible work. Education is not the constraint: girls now study as long as boys. But motherhood proves decisive. Among women with young children, labour-force participation plunges to 22%. Closing that gender gap could raise GDP by 9%, economists reckon. Instead Nepal continues to treat half its potential workforce as a household amenity rather than a productive resource.
The private sector, too, prefers caution over growth. Nearly 95% of Nepali firms employ fewer than ten workers. The reason is rational: crossing certain thresholds invites the attention of labour inspectors, social-security requirements plus compliance costs that can yank up expenses by a third. Better, many decide, to stay invisible. “You grow,” notes a garment producer in Lalitpur, “and the government grows with you.”
Smallness has macroeconomic costs. Informal firms are unproductive and untaxed. They provide neither security nor training. The state in turn collects too little to invest in infrastructure or education, the very things that might raise productivity. The upshot is a self-reinforcing loop of low investment, low productivity and low trust. One banker calls it “a subsistence equilibrium”.
Unable to expand at home, Nepali workers take their ambitions abroad. Migration has become both an escape and an institution. Recruitment agencies line the streets of Kathmandu; vocational schools train electricians for Doha rather than Dhulikhel. Families view foreign jobs not as temporary fixes but as the default path to prosperity. The safety valve distorts incentives. Domestic firms face chronic labour shortages. Wages rise without productivity gains. Automation looks attractive but capital is scarce. Rural villages empty out, leaving only the very young and the very old.
The inflow of remittances cushions consumption but also inflates property prices and imports. Real-estate values in Kathmandu have tripled in a decade, even as manufacturing stagnates. Banks prefer to lend against land rather than to industry. The economy thus tilts toward the unproductive but collateral-rich sectors of housing, retail and construction.
Even those willing to move within the country face obstacles. Poor roads as well as inadequate transport and scarce housing keep workers tethered to low-productivity regions. Human-capital utilisation in Bagmati Province (home to Kathmandu) reaches 27%; in the far west it tumbles to 12%. Internal migration that might spread skills or raise output is stymied by unaffordable rents and welfare benefits that do not travel.
A World Bank study finds that South Asia’s internal labour-mobility costs are the second-highest among emerging regions. Nepal fares worse still, lacking a network of “secondary cities” that might absorb migrants. Everyone moves to Kathmandu—and Kathmandu is full.
Economists tend to agree on three levers for job creation: build skills, ease business constraints and mobilise private capital. Nepal’s record on all three is uneven. Public investment habitually undershoots budget targets. Only one-fifth of graduates possess marketable skills. Banks remain property-obsessed, lending more to developers than to entrepreneurs. The outcome is an economy built on consumption rather than production.
Some sectors hint at change. Tech start-ups in fintech and outsourcing have begun to employ young programmers who might otherwise have emigrated. Hydropower projects and tourism could create labour-intensive growth, though both are hobbled by erratic policy and endless paperwork. Microenterprises across the country display entrepreneurial grit but little access to credit or training. “Everyone wants to grow,” says the Lalitpur producer. “No one wants to deal with the paperwork.”
By 2030 Nepal will need 3.3m new jobs merely to keep employment rates steady; by 2050 twice that. Achieving such growth will therefore require labour laws that allow firms to hire and fire without fear; cities that can house workers affordably; and digital infrastructure fit for the 21st century. Broadband speeds remain a quarter of those in rich countries; only a third of Nepalis have ever made a digital payment.
Demography still confers a final chance. Nepal’s working-age population will keep growing until the 2040s, after which ageing will set in. South Korea in the 1960s turned a similar youth bulge into an industrial surge through targeted education and export-led manufacturing. Nepal risks watching its own pass unused.
For the moment, the country’s greatest export remains its people. The remittances they send sustain an economy that gives them few reasons to stay. In the long run, though, no country can outsource its future forever. ■