As immigrants crossing the open border aggravated the unemployment problem, the Border and Migration Report of Nepal, 1983, prepared by the task force led by Dr Harka Gurung, had recommended introducing compulsory work permits for Indians. However, due to strong opposition and protests in some Terai districts, the report was never implemented. Although there are no exact statistics, Nepal’s small job market is considerably dominated by Indian nationals, who do not require work permits. Because of their unhindered entry, a large number of Nepalis remain unemployed in their own country. The inflow of the Indian workforce has undoubtedly affected employment opportunities for Nepalis, but this is not the only reason; there are numerous other factors contributing to Nepal’s growing unemployment problem.
Unemployment is a matter of demand and supply. The economy performs well when production is high and the demand for labor increases, which means employment rises. When economic growth is accompanied by high unemployment, it suggests that the economy is undergoing structural changes. Conversely, when the economy slows down, companies reduce hiring, leading to declining employment.
Nepal has largely failed to generate employment for its citizens at even a basic level. Its economic growth has always been sluggish, raising fears of a slump alongside rising unemployment. Because of the underdeveloped productive sectors, it has been difficult to absorb the growing number of unemployed youths. As a result, a majority of young people migrate to Gulf countries in search of work. The overemphasis on academic performance and the prevailing preference among youths for university degrees has produced qualified graduates who are often unemployable, lacking the technical knowledge and practical skills demanded by the labor market.
Employment reflects the economic health of a nation. Even if GDP rises, its impact is limited when unemployment remains high. Conversely, unemployment tends to decline during periods of strong economic growth.
Infographics: The state of global youth unemployment
Nepal has only limited jobs in the formal government and private sectors. A large proportion of semi-skilled and unskilled workers are dependent on informal employment or jobs abroad. It is important to note that while unemployment is increasing, the industrial and service sectors are simultaneously facing an acute shortage of skilled professionals. The current crisis, therefore, is not just about joblessness but also about the lack of skills in the organized sector. Many job openings exist, but suitable candidates are unavailable, and those roles are often filled by foreign workers.
Other patterns in the labor market also influence unemployment. First is cyclical unemployment, which occurs when there is insufficient aggregate demand to provide jobs for everyone who wants to work. Second is frictional unemployment, which reflects the time gap between leaving one job voluntarily and finding another. Third is structural unemployment, which arises from a mismatch between the skills workers possess and the skills employers demand (also called the skills gap). Structural unemployment is often driven by technological changes that render existing skills obsolete. All three forms of unemployment can be observed in Nepal’s job market.
It is generally believed that 4–6% unemployment is natural, while rates above 6% are unfavorable for the economy. Each year, over 500,000 young people enter Nepal’s job market. In 2021, Nepal’s unemployment rate was 5.1%, representing the percentage of unemployed people within the labor force. Currently, Nepal’s active workforce is around 16.8 million. The labor force includes those employed and those unemployed but actively seeking work; it excludes children, students, prisoners, retirees, and those not interested in jobs.
Unemployment is widely recognized as a serious social and economic problem. Joblessness and job loss have far-reaching consequences. Families of unemployed individuals face hardship, and prolonged unemployment damages health, especially mental health, and can even shorten lifespans. As the number of unemployed grows, their need for work to support their families intensifies. High unemployment has a self-perpetuating negative effect on businesses and the broader economy, ultimately driving up poverty. Equal participation of all castes, genders, and social groups in the job market is equally important. In Nepal, unemployment rates are higher among Dalits and lower castes compared to higher castes.
Despite the severity of the unemployment problem, there has been some improvement in narrowing gender disparities in labor market participation. Previously, when the manufacturing sector was relatively strong, more men were employed than women. Now, with the service sector dominating the economy, male participation has declined, while female participation has increased.
Decentralizing industry and ensuring balanced employment opportunities across all regions of the country are crucial for equitable economic development. When economic activities are concentrated in a few developed areas, underdeveloped regions are left with limited opportunities. Urban centers, especially the Kathmandu Valley, offer more and better jobs compared to rural areas. Provinces such as Sudur Paschim, Karnali, and Madhesh are hardest hit by unemployment, with hundreds of thousands of people migrating abroad or to India for work. The government must therefore adopt policies that encourage the decentralization of industries and other economic activities in these provinces to provide local employment opportunities.
In addition, labor-intensive technology should be promoted over capital-intensive technology in local infrastructure projects and programs. Initiatives in irrigation, housing, roads, flood control, power, agriculture, and small and medium enterprises can generate large-scale employment.
It is counterproductive to continue producing large numbers of generalist graduates without specialization or practical skills. Many existing colleges could be transformed into specialized institutions, providing knowledge and training in diverse areas that would make students more employable. The key to reducing unemployment lies in increasing government spending and creating a favorable environment for investment in productive sectors that generate jobs. Unemployed labor represents a waste of the nation’s most important resource—human capital. The economic condition of a country can be measured by the availability of job opportunities. When unemployment becomes widespread, it often sparks calls for protectionism and restrictions on immigration. Even advanced economies such as the United States are pursuing such measures, but for Nepal—with its open border system—implementing such restrictions is not an easy option.
