Kathmandu university school of management

Balkumari, Lalitpur

Policy Review V
Labor and Employment Policy

Submitted to:
Mrs. Anupama Pant
Faculty of Economics

Submitted by:
Samyami Thapa
Section C, 2nd Year BBA
187115

Date of submission: 28th April, 2020

 Introduction

Last decade recorded Nepal's economy growth at a mean of only 4.1 per cent. This

growth wasn't enough to form productive employment. Generally, the most sources

of economic growth were service and agriculture sectors. The industry sector had

achieved less than expected. Analyzing the background of the growing inflow of

remittance (29% of GDP), household consumption seems to possess influenced

Nepal's economic growth, and this has played a crucial role in balancing the

negative impacts of low rate of growth of exports.

 Summary of the policy

The Labor and Employment Policy (LEP) 2006 provides a comprehensive

framework for Nepal’s labor sector. It has seven distinct objectives:

i) the creation of an investment-friendly environment to generate

employment;

ii) the elimination of forced labor and discrimination to standardize the

labor force;

iii) the establishment of a social security system;

iv) augmentation of employment through production of competent and

skilled human resources;

v) increasing access of historically marginalized groups;

vi) elimination of child labor; and

vii) Increasing the efficiency of labor and employment administration.

The LEP identifies the creation of income-generating employment as a means of

poverty alleviation. It recognized the elasticity of the labor market and social

security as catalysts to generate new employment opportunities. Gender

mainstreaming is also emphasized, and micro-credit programs have been identified

as a way to generate self-employment for enterprising, educated youth and school

dropouts through the provision of vocational and entrepreneurial training and loans

at concessional rates. Like the National Youth Policy 2010, the LEP also

recognized youth as a priority group alongside Dalits, the poor, women, indigenous

peoples, the displaced and differently-abled as being in need of increased access to

activities such as vocational training programs that develop their capacities and

also make them more employable. Linking employment and self-employment with

quality vocational training and skills development training, the Policy proposes

two levels in the management of training, wherein the central level is involved

only in planning, coordination and curriculum development while implementation

is entrusted to the local or district level. The forms of training targeted at

individuals in the informal sector include entrepreneurial development, skill,

program organizational and leadership development, and labor standards. Besides

its emphasis on the generation of self-employment through entrepreneurship and

microenterprises, the LEP clearly indicates the need for a ‘distinct program…for

creating self-employment opportunities by developing entrepreneurial qualities

among the youth.’ This seems to have paved the way for the Youth Self

Employment and Small Enterprises Fund (YSESEF) that was introduced three

years later. Additionally, the Policy acknowledges the need for a Foreign

Employment Policy, which has been only recently adopted. Overall, the LEP,

though not officially adopted as a government policy, ventures into new arenas yet
unexplored by other government policies with clear reforms outlined such as the

streamlining of all labor agencies, decentralization of training, setting minimum

wages, gender mainstreaming, employment generation and increased access to

opportunities for priority groups. However, the lack of a clear policy focus and the

merging of issues of labor and employment has made the implementation of LEP

difficult and hence the need for a new employment policy

 Analysis: Pro

Tackling Cultural Constraint

In the real world large differences exist globally, between regions, races, classes

and castes and in term of gender. Also in Nepal opportunities are unequal along the

gender dimension. In general, poverty has gender, race, and ethics bias.

Specifically for the manufacturing sector differences exist in terms of number.

Due to various constraints, specially focusing on the cultural constraints there is

low supply of women and minority groups in this Employment Policy.

As shown in the figure, there is less supply of employment due to supply of only

males from high class. To reduce such problem Employment Policy has focused on

various sectors as well.

Priority is accorded to those activities that enhance the access of groups with

specific needs like the youth, Dalit’s, poor, women, indigenous peoples,

displaced and the differently able to skill development and vocational

education programs that develop extremely necessary skills and

capacities, which provide employment.

Employment oriented investment

Priority shall be accorded to employment-oriented investments. Additional

employment shall be generated by conducting employment oriented infrastructure

building and local development programs (such as rural roads, small irrigation,

health, education and similar other programs). So as to generate additional

employment opportunities through the promotion of special economic zones and

export-oriented industries, necessary provisions shall be inserted within the current

labor law with the consent of social partners.

 Investment multiplier

Extra government spending on roads can increase the income of construction

works, as well as the income of materials suppliers. But most importantly, if the

government focuses on increasing the employment opportunity, this increases rate

of consumption as well. These people may spend the extra income in the retail,
consumer goods, or service industries, boosting the income of the workers in those

sectors.

As we can see, this cycle can repeat itself through several iterations; what began as

an investment in roads quickly multiplied into an economic stimulus benefiting

workers across a wide range of industries. This increase the national income due to

high investment and high consumption.

 Analysis: Cons

Brain Drain

Driven by the limited employment opportunities in their places of residence, a

comparatively large percentage of Nepalese seek employment either

elsewhere within the country or abroad. Of the entire population of Nepal, 20.3 per

cent are considered to be migrants (29.8 per cent of males; 10.9 per cent of

females), of whom, 56.9 per cent are believed to be internal migrants while 43.1

per cent have gone abroad. The amount of male migrants has been increasing

exponentially (from 679,469 in 2001 to 1,663,237 in 2011), and despite being

proportionately smaller, the female migrant population has also been increasing

rapidly (from 82,712 in 2001 to 254,666 in 2011).

The implication of such a high volume of remittances is critical. Amongst the

remittance-receiving households, approximately a third of their income comes

from remittances. In fact, even households within the poorest consumption

quintiles receive remittances (47.6 per cent of the households) although the

typical amount received by these households is a smaller amount than those from

the richest quintiles. The result, as could be expected, has been a

significant reduction in poverty rates; it's estimated that more than half the decline

in poverty rates from 1995/96 to 2003/04 (from 42 per cent to 31 per cent) are

often attributed to remittances.

However, the policy has not focused on the problem of brain drain. Though brain

drain is somewhat advantageous to the nation, but there are many drawbacks,

which the government is not focusing on.

With the increase in concmuption rate, the inflation rate increases even when the

nation is not focusing on productive sector. However, this casues a problem during

recession.
Informal sector and informal employment

As in other developing countries, the informal sector is a pervasive and

protracted economic feature of Nepal, contributing significantly to employment

creation, production and income generation. consistent with the

world Development Report 2011, the informal economy in Nepal constitutes about

37.5 per cent of the GDP, a size above in other countries of South Asia

Further, it's estimated that employment within the non-agriculture informal sector

increased by 29.3 percentage points from 1999 to 2008, a period when an

overwhelming proportion of Nepali workers, 96.2 per cent, were working within

the informal sector (both agricultural and non-agricultural), indicating that this

trend is probably going to extend within the coming years.

In terms of providing quality employment and decent work opportunities, these

trends are disconcerting because the informal sector is understood to supply low-

quality, unproductive and poorly remunerated employment opportunities.

 Poverty trap

This suggests that those already disadvantaged in terms of the rural-urban

divide also are those subjected to the uncertainties of the informal sectors, putting

them at risk of falling into the poverty trap.

 Low Income

Low Poverty Malnutrition

Employment
Trap

No Social
Security

More important perhaps is that the incontrovertible fact that it overwhelmingly

hinders workers from enjoying their rights. As they fall outside the protection of

the law, they're usually forced to figure in dismal conditions, without legal

recognition, social protection, and often without any voice or representation within

the workplace.
 Analysis: Effectiveness

Employment intensive investment program

The objective of LEP’s add Nepal is to enhance the capacity for provision and

maintenance of rural infrastructure, thus contributing to the government's efforts to

alleviate poverty within the rural areas. As a part of this support, the ILO

assists the government in developing their infrastructure investment programs

with a stress on enhancing the utilization of local resources in rural infrastructure

works through measures like local employment creation, involvement of the local

private sector and strengthening government organizations.

During an equivalent period, the ILO worked closely with the World Bank

(WB) to create capacity within district authorities and personal contractors for the

construction and maintenance of rural roads using employment-intensive methods.

A training center was established in Butwal where both contractors and

government staff were trained.

The EIIP also provided technical inputs to the Karnali Employment Program

(KEP). The KEP is a structure based social protection scheme in one among the

poorest parts of Nepal in an effort to deal with the regional dimension of poverty

and vulnerability.
  Government Expenditure Multiplier

In 2010, employment-intensive investments in community infrastructure

featured together of the components within the Jobs for Peace Project, a joint

FAO-ILO program promoting youth employment as a part of the post-conflict

process of reintegration. The EIIP supported local communities in improving local

roads, market infrastructure and irrigation schemes in Parsa and Rautahat Districts.

After the earthquakes in 2015, the EIIP actively participated within the Post

Disaster Needs Assessment and also supported the government efforts in its early

reconstruction works with technical assistance and funding support to

debris clearance and maintaining access roads into the affected areas.

As shown in the figure, when the government starts investing on infrastructure of

development, people and citizens get employed. This leads to increase in high

consumption, high investment and high GDP

Self-employment programs by the government

Youth Self-Employment program of the government has, of late, turned a boon for

thousands of youths who wish to be self-employed by starting small business of

their own by taking the government subsidized loans.

Youth and small Entrepreneur Self-Employment Fund (YSEF) Secretariat under

the Ministry of Youth and Sports runs the program.

 Monetary Policy

As of today, quite 60,000 youths and small entrepreneurs have already become

self-employed under the program, The YSEF was established with the aim

of completing self-employment programs, and providing orientation, vocational

and skills development training to the unemployed youths across the country.

YSEF helps provide the educated and uneducated unemployed youths with

necessary collateral-free loans from the banks, financial institutions and

cooperatives at a low rate of interest so as to form them self-employed.

Dr. Gautam said that the YSEF has made over 61,000 youths self-employed by
providing them with loans while quite 180,000 people are expected to urge jobs

indirectly.

As shown in the figure, with the increase the credit supply by the government to

the young entrepreneurs are able to increase their level of income. With

investment, employment is generated leading to consumption.

 Analysis: Ineffectiveness

 Child Labor

The estimated labor force participation for children, 5 to 17 years aged, in Nepal is

40.4 per cent (3.1 million), of which approximately 90 per cent are

contributing relations who aren't paid. Furthermore, of the working

children, it's estimated that 1.6 million, almost 51 per cent, fall within

the category of child laborers. Despite this high prevalence of

child labor, it's encouraging to notice that the incidence of

child labor, especially for ages 5 to 14, has been on a decline from 31.4 per cent in
2004 to 27.6 per cent in 2011. Regardless, in light of the very fact that the

child Labor Act 2000 outlawed child labor and set the minimum age of

employment at 14, it's evident from the statistics above that the

implementation also as enforcement of the law has been weak.

According to the info from NLFS 2008, 39.6 per cent of kid workers workout to 14

hours a week; 35.9 per cent work between 15 and 28 hours; 14.8 per cent work

between 29 and 42 hours; and 9.7 per cent work quite 42 hours every week, a

majority of the child laborers are employed in self-agriculture (74.9 per cent of 10-

14 years and 71.1 per cent of 5-9 year child workers). The implication of this is

often that these children are presumably not even being compensated for

their work as they're probably performing on their family farms to assist the family

make ends meet – another strong indicator of the very fact that child labor and
poverty go hand in hand. Moreover, of this working child population, 50.9 per cent

are classified as child laborers, and a further 19.7 per cent of those children are

engaged in hazardous working conditions. While complete elimination of

child labor won't be possible anytime soon, the

fact that numerous children aren't only working but also working under perilous

conditions is of grave concern. Low education causing low labor supply.

Labor and education relationship

The relationship between education levels and employment is a critical one. In

Nepal, in light of the recent advances made in terms of educational attainment, the

statistics on education are notable although still low compared to international

standards. Consistent with the NLSS 2010/11, the entire literacy rate (5 years and

above) is nearly 60 per cent compared to 50.6 per cent in 2003/04.

 Low Labor Supply

However, differences across gender, geographic regions and income quintiles are

still significant. More specifically, female literacy rate is 20 percentage points less

than that of males; rural areas fare much worse than urban areas, with the

differences between males and females in rural areas being even more pronounced;

the Central and Far-Western regions have the lowest rates of literacy; and

the literacy rates within the poorest wealth quintile is nearly half the richest

quintile. Such low levels of education, especially with significant differences

across groups and regions, are considered a serious impediment to economic

growth, employment creation and eradication of poverty. Low levels of education

make it harder to require advantage of opportunities offered by a globalized

economy, where liberalization and academic expansion can either, during

a virtuous cycle, reinforce one another or cause stagnation. Societies with high

illiteracy levels are shown to be more vulnerable to political manipulation,

corruption and bad governance also as civil strife and violence – phenomena that

undermine human also as economic development. On the contrary, education is

seen to possess an immediate influence on social attitudes like health-seeking

behavior and provision of higher education of youngsters no matter household

income. With regards to the connection between education and employment, as in

many other low-income countries, in Nepal, too, most of the illiterate population is

used and the non-activity and percentage for them is additionally the lowest.

Nonetheless, the percentage and academic attainment still exhibit an

immediate relationship, i.e., unemployment rates rise with increases in educational

levels. This is often because individuals with the lowest educational attainment

tend to be the poorest, and, hence, cannot afford to stay unemployed or inactive.

On the opposite hand, the upper rate of unemployment amongst the educated

is presumably a results of individual preferences including the scarcity of jobs

appropriate for the skill sets.

 Solution

 Transition of labor informality to formality

As is clear from the analysis, the informal sector also as informal employment is

pervasive in Nepal. There’s a requirement to support initiatives that might facilitate

their transition to formality. However, approaches and methodologies that

might effectively facilitate such transition are unclear and, hence, studies and

analyses, including lessons from global practices, are required. Efforts to

demonstrate the benefits of engaging within the formal sector and formal

employment by paying close attention to sectors like agriculture where informal

employment is high would be important. This is able to require supporting small

and medium enterprises (SMEs) through greater awareness on the advantages and

protection that accompany formalization, business development services, improved

access to finance, market access, value-chain development, credit programs as

well as training and promotional activities.

This shows there must government’s intervention from both fiscal and monetary

side, to increase the level of formal sectors. As the government starts focusing on

those areas, informal sector turns into formal sector. So, to reduce informal

unemployment, government intervention is must.

As the government starts spending and investing on the irrigation side, small

industrialization, reducing interest, affiliating in credit services, there is generation

of formal employment as well. This reduces the chance of increasing the number

of informal sectors. With close government relation in such sectors and increase in

employment opportunity through government intervention, informal sector

becomes obsolete.
  Invest in Human development

Initiatives and interventions geared towards employment creation are going to

be effective and sustainable only if there are strategic complementarities with

investments in human resources. This will require prioritizing the education

sector ready to which can be able to produce skilled manpower. Given the

formidable achievements up to the first level, the government of Nepal must place

more specialize in improving secondary- and tertiary-level education, and also

create opportunities for the enhancement of vocational and technical skills. This

may require more and better-managed investments in education by the

government, donors and civil society groups. To further aid youth employment,

other initiatives like providing tax incentives to companies that make jobs

for young people or provide internship opportunities also are much required. The

tax incentives could comprise monetary incentives like providing direct cash grants

or tax breaks while non-monetary benefits could include fast-track approval

processes or exemptions from certain regulations. To the extent possible, such

incentives should target companies in areas outside the urban centers and thus,

have the potential to avail the young rural population with employment

opportunities.
This increases the labor supply of employees for a long term. With provided

education to the people of rural area, they get employed in their desired sectors

with desired income level.

With such increase in the labor supply, people are employed. Due to high supply of

labors, labor wage rate also starts decreasing. As the wage rate decreases and the

employment increases in the nation, it is a win-win situation for both the demand

and supply side of the market. With such equilibrium, it increases the national

income.
  Enhancement of decent employment opportunities to reduce brain

drain

Until and unless the government doesn’t takes an incentive of not only providing

employment but also focusing on the safety, labor legal assets, labors safety and

protection and minority groups, brain drain will not be mitigated. If the

government also focuses on credit facilities for those who wish to start their own

enterprise, then much of the problem of brain drain will be solved. From the

remittance earned, only the consumption rate increases in the nation. However, if

the people are employed in their own nation and have an opportunity to invest in

their desired sectors, not only the consumption level but also the investment and

net export level of the nation comes to a positive side. This gradually increases the

national income.
That markets don't work perfectly has become an adage, thus making it essential

for governments to intervene in manifold ways. Within the context of Nepal,

government interventions are required particularly in areas of labor

standards, like occupational safety and internal control. Despite existing legislation

against labor exploitation, including child labor, these practices have

continued. There's thus a requirement to strengthen existing provisions by that

specialize in their implementation, strengthening the capacity of respective

government institutions, enhancing the monitoring mechanisms, and enforcing

higher penalties in case of their occurrence. Given the vertical also as horizontal

inequalities that exist within the labor market, particularly with regard to rural-

urban, gender and caste/ethnic divides, there's a requirement to specialize

in creating employment opportunities which will help erase these inequalities. This

might require introducing quotas, formulating policies of positive discrimination,

and presenting tax and other incentives to employers across all sectors that

undertake such measures. Ensuring decent work also will require more sustained

efforts towards stronger labor inspection in order to spot legal abuses among

employers of all kinds.

 Managerial Implication

The employees play an important role in obtaining the goal of the organization.

They are the assets of the organization, hence the labor turnover ratio of the

organization is to be maintained as well as the employees are to be trained with

various workshops and seminars. Their grievances are to be handled properly and

need to be well informed and trained. This reduces uncertainty and increases faith

among the organization. Likewise, the organization should not set overambitious

and vague goals. Due to such vague and overambitious goals, the employees will

not be able to achieve the goals as it lacks step by step process of completing and

securing the desired goal.

 Reference

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https://www.ilo.org/kathmandu/whatwedo/projects/WCMS_377004/lang--en/index.htm

https://www.researchgate.net/publication/330321303_Economic_Causes_of_child_labor_in_Nepal

https://www.researchgate.net/publication/318940567_Employment_Challenges_in_Nepal_Trends_Cha
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 Honor code
On my honor as a student, I pledge that I have neither given nor received aid on
this assignment.”

Samyami Thapa