IMAGE: BAJAJ NEPAL
NEPAL OUGHT to be benefiting from its demography. The country is well into a demographic transition with a huge share of its population made up of young adults. In East Asia a similar expansion of the working-age population helped drive decades of rapid growth. In Nepal it has produced a different outcome. The labour-force participation rate—the share of people aged 15 or older who are either working or actively seeking work—is just 35.8%. Put simply: almost two in three working-age Nepalis are not engaged in the formal economy. For a country with a young population, that is a big loss of potential. The reasons are weak job creation, widespread informality and sustained emigration.
Start with the lack of employment opportunities. Between 2010 and 2018 only four in ten new entrants to working age found a job. Economic growth has not translated into employment at the scale required. Much of the work that does exist is informal and insecure. About 82% of Nepal’s workforce is employed in the informal sector, far above regional and global norms. This is not a sign of a thriving small enterprise. In fact, it reflects subsistence farming, petty trading as well as casual labour carried out without contracts, protection or benefits. Workers in the informal sector earn, on average, 29% less than comparable workers in formal employment.
For many households this makes participation a weak proposition. Take Sujata, a representative figure drawn from national survey data. Her father works on a small, unregistered ginger farm. His income is low and unpredictable. For millions of Nepalis, actively searching for such work does not seem worthwhile. They are therefore not recorded as unemployed, but as outside the labour force altogether.
Women are particularly affected. Nepal’s female labour-force participation rate stands at 22.7%, less than half that of men. This is not mainly a matter of preference. Around two-thirds of Nepali women are engaged in unpaid domestic work including cooking, cleaning and caring for children and older relatives. Social expectations reinforce that division of labour. Supportive services are limited. Affordable childcare is hard to find and workplace protections linked to pregnancy and maternity are weak. Government data show that the age of a woman’s youngest child strongly influences whether she engages in paid work. Among mothers with a one-year-old, the participation rate is just 26%, and it remains low as children grow older. As one labour economist at the Nepal Institute of Development Studies puts it, the household becomes a place of production that generates no income.
Education shows the limits of the labour market. More schooling generally raises women’s chances of entering paid work, but the effect is constrained. Women with a bachelor’s degree or higher have a participation rate of 57%. That is respectable but still well below the 79% recorded for men with the same level of education. For women with only basic schooling, like Sujata’s mother who did not complete primary school, access to formal employment is minimal. Their potential contribution is held back by domestic responsibilities and a labour market that provides few suitable jobs.
For many men, the most practical response has been to leave. Nepal has one of the highest rates of outward migration in South Asia. The number of migrants rose from about 750,000 in 1990 to 2.6m today, or roughly 8% of the population. Most are men of working age. Their departure reduces labour-force participation at home. The money they send back plays a central role in the economy. Remittances amount to nearly a quarter of GDP, placing Nepal among the world’s largest recipients. They have helped lessen poverty and pay for housing, schooling, healthcare and so on.
That reliance carries costs. The economy has come to depend on the export of labour. The steady flow of remittances supports consumption and props up the exchange rate. That favours sectors such as real estate and retail services while making it harder for export-oriented manufacturing to compete. Job creation at home becomes less urgent when household incomes are sustained from abroad. As a senior economist at the Asian Development Bank in Kathmandu argues, migration has taken the place of a development strategy.
For those who try to expand businesses inside Nepal, the obstacles are big. Small and medium-sized firms face tight credit conditions. Banks prefer lending against land, buildings or remittance-backed income rather than business plans. Registering a firm is slow and full of red tape. Limited understanding of regulations and fear of taxation keep many enterprises informal, where they struggle to grow, as well as borrow and provide stable employment.
Demographic pressures will intensify. Nepal’s working-age population is expected to continue soaring until around 2050. Absorbing new entrants will mean creating some 6.5m jobs over the coming decades. The opportunity is time-bound. Countries that have benefited from similar conditions such as South Korea combined investments in education with labour-intensive industry and coherent family and labour policies. Nepal has not yet followed such a course. Much of its human capital is either underused at home or employed abroad.
Low participation then reflects economic incentives rather than indifference. It is the outcome of limited job prospects; weak support for working women; and an economy reliant around migration. Until Nepal builds a cycle of better jobs, higher productivity and rising pay, many will continue to leave or stay disengaged. A demographic dividend does not arrive on its own: it has to be earned. Nepal has yet to put the conditions needed to do so. ■
