There are no reliable data available on the size of unemployed workforce in the country but we can get a sense of its magnitude by looking at the relevant population numbers. Given that the country’s population is increasing at 2.5 percent rate annually, growth in the labor force is believed to be markedly higher than this rate, mainly because of our huge young-age population. In addition, labor force participation rate has been edging up higher because of the spread of education and urban drift—a growing trend towards urbanization.
The only lasting solution to the joblessness problem is to make the economy grow faster—much faster than the current rate of 3 percent.
Assuming the size of adult-age population is equivalent to 45 percent of the total population (about the average for similar other countries) and its annual growth is 4 percent, a country with a population of 30 million will be adding about 500,000 working-age population every year. Looking at the fact that the number of youths taking SLC exam will soon be reaching the 400,000 mark, and taking into account the very low literacy rate of the average population, the estimated growth in working-age population by 4 percent or 500,000 per year seems right.
Matching this figure to the number of jobs created annually – in public and private sectors together – we can get a rough idea of the magnitude of unemployment problem existing in this country, especially its incidence affecting youth population. Again, we face the data problem—there are no published data on youth unemployment or unemployment rate generally. We can make a rough estimate of employment-unemployment numbers indirectly by using a simple methodology that ties a country’s economic growth rate to employment creation. According to this methodology, one percentage point increase in a country’s total production or GDP reduces the unemployment rate by 0.5 percent.
Looking at the past 10 years, Nepal’s GDP growth has averaged 3 percent per annum, which means that this would have helped absorb labor force growth of 1.5 percentage points, which is less than half the labor force growth rate mentioned above. With the labor force growing by 500,000 (4 percent) annually and given the 3 percent GDP growth, this would have increased the unemployment pool by 300,000 persons each year during the recent years. Going back 20 years, assuming lower than 300,000 annual increase in the number of unemployed workers, and 2 million people unemployed at that time, a rough calculation would suggest a total of 7 million unemployed people as of today, which means an unemployment rate of 50 percent. Compare this rate with unemployment rates in other countries with good data—USA, 9.5 percent; China, 9 percent; India, 6.8 percent; Japan, 5 percent; and Singapore, 3.3 percent.
To say that one half of Nepal’s adult-age population is unemployed does not mean that people without jobs do nothing. For one thing, a large chunk of it is engaged in foreign employment, most of them for short periods of time. Assuming the number of overseas workforce at about 2 million, this leaves us with 5 million or 35 percent of unemployed workforce. However, in view of the large size of the informal sector – subsistence agriculture, petty trades, domestic help and food service employment – most of these people have found jobs on an ad hoc basis; open unemployment in the way in which it exists in the advanced countries is absent here.
INSTABILITY & CRIME
During a private meeting some months ago, Maoist leader Baburam Bhattarai told me that the most serious problem facing the country at this moment is the extent of joblessness among the youth population and, for this reason, finding gainful employment for these people has to be the topmost priority. Bhattatrai did not elaborate why joblessness is troublesome and how this problem can be solved but he implied that social fragmentation and political instability are, to a large extent, the consequence of joblessness.
Indeed, with a third of the adult-age population unemployed or only partially employed, it is difficult to conceive of peace and quiet, stable politics and social and economic progress of any kind. On the contrary, disorderliness, insecurity, disharmony and conflict would be the order of the day—which closely mirrors the situation this country is presently in.
We can witness the effects of joblessness on city streets, where literally thousands of young people are found milling around aimlessly and huge crowds can gather in minutes to protest a government decision, enforce road closures, attend political rallies, listen to speeches by politicians and carryout mob-justice following a traffic accident. In countries where most people are gainfully occupied, it would be a rare sight to see such crowds gathering on city streets or in public places except on some benign occasions like the national day celebration, victory parade or for marches organized by special-cause groups—environmental protection, gay rights advocates, right-to-life campaigners, among others.
Generally, enforced joblessness lowers people’s self-esteem, weakens their stake in society, induces hopelessness and makes unemployed people vulnerable to criminal behavior. Unemployed people get the wrong incentive of earning more money from criminal activities when there is little or no risk of getting caught and punished. Also, chronically-unemployed people are easily attracted to criminal gangs and radical groups.
One would say that the Maoist uprising of the past decade had its roots in the repeated failures of former regimes to affect structural changes in the economy that could have helped lift growth rate and created opportunities for gainful employment in useful activities. It is not difficult to see why this could be the case. Opportunity cost of engaging in non-profit or unlawful activities (volunteering for revolutionary work or attraction of joining a criminal gang, for example) increases with improved earning prospects and good outlook for personal development. This can be possible only when the economy starts generating large number of jobs and most people who want jobs can find one.
ECONOMIC GROWTH IS THE KEY
The only lasting solution to the joblessness problem then is to make the economy grow faster—much faster than the current rate of 3 percent (the so-called Hindu Rate of Growth) on a long-term basis. Faster growth in economic activities – production of goods and services – helps job creation and expansion of employment opportunities. As noted above, on average, an extra 1 percent growth in GDP helps create additional jobs equivalent to half a percentage of the workforce. With current growth rate of labor force at 4 percent annually, this would require the Nepali economy to grow at the rate of 8 percent or nearly 3 times its long-run average. Additionally, a couple of percent extra growth would be needed to engage people who are currently unemployed—approximately 5 million of them.
Our well-meaning political leaders—most notably those leaning left—are known making public statements in favor of achieving double-digit growth but, in my judgment, they don’t have a clear idea on how to go about it. Rudimentary economics will teach them that economic growth is tied to the level of a country’s resource endowment and the type of technology it uses to maximize productivity. We have an abundance of labor and land resources but lack adequate capital inputs to support production. About the level of technology use, much of our production depends on outdated and inefficient technology, mainly because we do not have the know-how or experience to work with advanced technology. Also, we do not have enough capital to buy new machinery and equipment.
Given the limited availability of capital, which is needed for specializing in capital-intensive production (hydroelectricity, financial services, tourism, for example), our economic growth and job creation strategy needs to be based on the maximum utilization of our other resources (labor and land), which would also help utilize our comparative advantage in labor-intensive and land-intensive production. Indeed, specialization in activities based on comparative advantage has been the key to economic progress across countries and this also forms the basis for structural change—moving away from primary production into industrial specialization and then into services. Also, the exploitation of comparative advantage creates a basis for competitive export production, expanded access in the global market and the country’s integration into the world economy.
We can attribute Nepal’s economic difficulties – particularly its abysmal growth performance over long periods – to numerous factors: Land-locked geography, difficult terrains, undeveloped infrastructure, ethnic diversity, political instability and open-border with India, to name a few. Undoubtedly, such constraints as have existed did play a role in making the task of economic development much harder than could be the case otherwise. Nonetheless, the economy could have fared better had our development efforts been focused on maximizing the use of our land and labor resources. With one-third of labor force unemployed and probably another third doing no useful work (together with the fact that much of our land resource remains unutilized during greater part of the year because of lack of irrigation and capital inputs), a lion’s share of investment resources should be going for agricultural development and associated agro-industry sector that have the largest potential for labor force absorption.
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