Wednesday, July 31, 2019

Unemployment rate in Nepal is about 11.4 percent

Central Bureau of Statistics (CBS) published third edition of labor force survey few months ago. Unlike NLFS I and NLFS II, definition of employment is now narrower— the new definition of employment includes only work performed for others for pay or profit. So, production for own final use is not considered as employment. This is consistent with the 19th International Conference of Labor Statisticians in 2013. 

The changes in definition of employment mean that some of the employment and unemployment related indicators cannot be compared to the previous surveys. The survey covers general household information, current activities, current working hour, usual working hour, unemployment, past employment, and absentees. 

Here are the major highlights:

1. Population: About 38.7% of the population was below 20 years of age. About 63% reside in urban areas (note that the definition of rural and urban areas changed after the new local units were formed).The share of male in age cohorts between 20 and 49 is lower than that of female, indicating the male-dominated large-scale outmigration for work. The total population in 2018 was 29 million. 

2. Working-age population means individuals aged 15 years and older who are employed, unemployed, and not in the labor force. There were 20.7 million people of working age (15 years and older), and 40% of them were aged between 15-34 years. The share of individuals aged 15-24 is the largest among the unemployed people. Also, the share of the same age group is the highest among those who are not in the labor force. Labor force consists of individuals who are employed and those that are considered unemployed. The male to female ratio in the working age population is 100:125. But, among the employed, it is 100:59.

3. Labor force consists of individuals who are employed and those that are considered unemployed. Among the 20.7 million people of working age, 12.7 million were not in the labor force (61.3%). About 8 million people were in the labor force (7.1 million employed and 0.9 million unemployed). 

The share of working-age population not in the labor force is above 50% in all the provinces— the highest 72.7% is in Sudurpaschim and lowest 52.9% in province 3. About 79.1% of the labor force did not have secondary education. 

4. Employed: Anyone of working age is considered employed, in any activity to produce goods or provide services for pay or profit,  if he or she had a job for at least one hour (“at work”) in the reference week, or is not at work due to temporary absence from a job or due to working-time arrangements (flexitime, leave, shift work, etc). Paid trainee is regarded as employed.

There were 7.1 million employed people. As a share of total working age population, it is about 34.2% (or employment-to-population ratio). Province 3 had the highest EPR (48.3%) and Sudurpsashim province the lowest (24.1%). The male EPR was 53.8% and female EPR 26.3%.

5. Unemployed: An individual is unemployed if he or she is completely without work but is currently available to work and is taking active steps to find work.  The reference period is unemployed in the last week but actively engaged in seeking job in the last 30 days and is available to start working in the next 15 days. 

The unemployment rate was 11.4% (about 908,000 people of working age)Unemployment rate measures that proportion of the labor force that is trying to find work The highest unemployment rate was among 15-34 years. About 21.4% of 15-24 years age group were unemployed and for 25-34 years age group it was 12.7%.

The highest unemployment rate was in province 2 (20.1%) and the lowest in province 3 (7%). Unemployment rate among working age male was 10.3% and among female it was 13.1%.

There is a wide gap between labor force (employed and unemployed) and  working age population. It indicates that a large section of the working age population in fact did not work in the reference week, either because they did not look for work or try to start a business in the four weeks preceding the survey, or were not available to start work or a business in the reference week. One of the reasons is that most households are self-employed in agricultural sectors and production is mostly used to sustain household consumption, i.e. not intended to be sold in the market to earn profit. Earlier editions of NLFS considered these individuals to be employed too (and hence the low unemployment rate). In a way, with EPR of 34.2% (that is the share of employed population to working age population), those not employed (unemployed and not in labor force) comes to be about 65.8% (ignoring the definition of unemployed for a bit).

6. Labor underutilization: Labor underutilization is a wider measure of unemployment that takes into account the potential labor force as well. Usually, labor force constitutes employed and unemployed working-age population. However, extended labor force includes labor force plus potential labor force (which basically are those unemployed individuals who express an interest in working but are limited by existing conditions to actively search for job or make themselves available). For instance, during an economic downturn unemployment rate increases sharply even though people are willing to work more and some people might just engage in self-employment. 

Of the 12.7 million people outside the labor force, 2.6 million should be considered as potential labor force as they were either seeking work or they wanted to work and are available— showing some form of attachment to the labor market. 46 thousand individuals were actively seeking work but were not available to work (unavailable job-seeker) and a further 2.5 million individuals wanted to work and were available to start working (available potential job-seeker). If we add these individuals to the usual definition of labor force, then we get an extended labor force (10.6 million). Therefore, extended labor force makes up about 51% of total working-age population

The labor underutilization rate based on extended labor force was 33.1%. If we further include the time related underemployed (those who wanted to work more hours) to the extended labor force, then labor underutilization rate comes to be around 39.3%.
  • Unemployment rate= [unemployed/labor force]*100 
  • LU2= [(time-related underemployed + unemployed)/labor force]*100
  • LU3= [(unemployed + potential labor force)/extended labor force]*100
  • LU4= [(time-related underemployed + unemployed + potential labor force)/extended labor force]*100
7. Sectoral employment: A majority of the 7.1 million employed individuals are in the services sector. About 30.8% are in industrial sector and the rest 21.5% in agricultural sector. The share of employed female in agricultural sector is higher than the share of employed male. It is the opposite in the industrial sector, but around the same in the services sector. 

As a share of GDP too, services sector accounts for about 50%. Within services sector, wholesale and retail trade related activities have 17.5% of the total employed population. The next big employer is manufacturing (15.1%), followed by construction (13.8%), and education (7.9%).

8. Formal and informal sector: About 62.2% of the 7.1 million employed individuals are working in the informal sector (agriculture, non-agriculture, and private households). Only 37.8% are employed in formal sector (agriculture and non-agriculture). 

Non-agricultural formal sector comprises of incorporated companies or establishments that are registered with relevant authorities, government or state-owned enterprises, and international organizations/foreign embassies. Meanwhile, non-agricultural informal sector comprises of enterprises that are neither incorporated nor registered with authorities. Employment in private households is also informal.

9. Informal employment: There is a need to make a distinction between formal and informal sector, and formal and informal employment. Even if an individual is working in formal sector, he or she may not have access to basic benefits. Informal employment includes employers, own-account workers and contributing family workers who are employed in formal sector establishments, as well as employees and paid apprentices/interns who do not have paid annual leave or sick leave benefits and whose employers do not contribute to their social security. 

Considering this definition of informal employment, about 84.6% of those in employment were informally employed. Specifically, 59.2% of formal sector employment was informal and 100% of informal sector employment was informal. Informal employment is widespread in all occupations except managers – professionals, technicians, associate professionals, clerical support workers, service and sales workers, skilled agriculture, craft and related trade works, plant and machine operators, and elementary occupations among others.  

10. Monthly earnings: There were 3.8 million employees and paid apprentices/interns who were paid in cash the last time they were paid in their main job. About 51.1% received payment monthly. Just 0.3 million of those who were paid in cash (or 14.7%) earned Rs25,000 or higher monthly. About 41.3% earned between Rs15,000 and Rs25,000 monthly.

The average monthly earnings was Rs17,809 and median monthly earnings was Rs15,208 (median is not sensitive to extreme values). More skilled jobs fetched more earnings. In all occupations, male earned more than female.

Some technical background: 
  • Like in NLFS I and NLFS III, the survey covers the entire country.  The sample size is 18,000 households (10,500 households from urban areas and 7,500 from rural areas). The sample design involved a two-sage probability proportional to size selection process— administrative wards were selected with PPS and then 20 households were selected by systematic random sampling method. The survey was carried out between 16 July 2017 and 15 June 2018 in three cycles (dry, rainy and winter). 
  • The administrative wards are the PSUs and there are 900 of them in NLFS III (375 from urban areas and 535 from rural areas). Municipalities are considered as urban areas. The reference period is a week before the survey for employment. For unemployed, the reference period is unemployed in the last week but actively engaged in seeking job in the last 30 days and is available to start working in the next 15 days. Unemployment rate measures that proportion of the labor force that is trying to find work.
  • Labor force participation rate measures the proportion of working-age population that engages actively in the labor market (either by working or looking for one). LFPR was 38.5%. Male LFPR was 53.8% but female LFPR was 48.3%.
  • Employment-to-population ratio, which measures the proportion of the working-age population that is employed, was 34.2%. About 48.2% of male of working age were employed compared to 22.9% of female of working age.