Image: Ian Gilliver
A stroll through Kathmandu’s bustling markets shows a country at odds with its people. Nepal has a swelling workforce, but an economy that cannot absorb it. Nearly two-thirds of working-age adults do nothing. Among those who do work, four out of five are trapped in informal jobs, earning barely enough to survive. The rest of the country waits.
Nepal makes little use of its people. Its Utilisation-Adjusted Human Capital Index (UHCI), which measures how much of a person’s potential productivity is realised in adulthood, is just 0.18. That puts it near the bottom of the world, far behind neighbours like Bhutan (0.60) and India (0.49). A child born today in Nepal will, on average, realise only 18% of their productive potential. The cost is enormous: fully using that human capital could boost GDP per capita more than five times.
The mismatch is baked in. Between 2010 and 2018, fewer than half of new working-age adults found jobs—and the problem has not eased. Official unemployment is 12.6% (see chart), but that underplays the scale of the failure: much of the population has dropped out of the labour market entirely. Most of the inactive do subsistence farming or unpaid household work. One in five is in school; one in four contributes nothing economically at all.
Gender deepens the problem. Women make up just 26% of the workforce, compared with 53% of men. Even those with university degrees struggle to find work: among mothers of young children, participation sinks to 22%. Education is no longer the barrier—women now match men in attainment. Instead poor childcare, weak maternity protections and inflexible jobs trap many in unpaid domestic work, where their contribution goes unmeasured.
Geography matters as well. Human capital utilisation is 27% in Bagmati Province, but tumbles to 12% in Sudurpaschim and Karnali. There, education rarely leads to work. More than a third of young people—35%—are neither employed, in school, nor in training, well above the South Asian average. The school-to-work pipeline is not just leaky; it is broken.
Underemployment hides in informality. Of Nepal’s 6.6 million workers, 82% are in informal jobs—farming, family businesses, casual labour and so on—where output is low and protections few. Informal workers earn 29% less than similarly educated colleagues in formal employment. The state feels it too: a narrow tax base keeps government revenue tight, a serious constraint for a country trying to expand infrastructure and public services.
There are signs of hope. Small businesses show a hunger for growth. Yet credit is scarce and registration is a maze. Without focused support such as financial and regulatory, these firms will stay at subsistence level. Around the world, small businesses create jobs; in Nepal they barely get started.
Demography is Nepal’s biggest asset—and its greatest squander. A young, growing workforce confers a brief window to speed up growth before ageing arrives. South Korea faced a similar surge in the 1960s and acted with family planning, as well as labour-intensive industry and targeted education. Nepal has largely failed on those fronts.
Policy ambition is weak. Nepal will need to create 3.3 million new jobs by 2030, and 6.5 million by mid-century, just to turn its demographic dividend into opportunity rather than crisis. Without formal employment, wages will stagnate and inequality will rise. Worse, frustration will mount. Many are already leaving: remittances from Nepalis abroad make up a quarter of GDP.
Human capital is supposed to be a country’s most valuable resource. Here it is the hardest to use. Labour is plentiful but idle; education is widespread but wasted. The failure is not with the people—it is with the systems meant to harness them. ■
