Outmigration trend in Nepal: Absentee population, destination and reasons

Based on the population census data (see blog post on demographic dividend and structural transformation using the same dataset), this blog post highlights key features related to absentee population (basically those who outmigrated for more than 6 months). Overall, the total absentee population increased to 2.2 million in 2021, which is over 3 times the number in 1991 (before the Maoist insurgency). In 2021, absentee population was 7.5% of total country's population, up from 7.3% in 2011 and 3.3% in 2001. 

Most of the absentees were out of the country due to salary or seeking job (77.3%), followed by dependent (10.4%), and study or training (9.6%) among others. Historical trend shows that while the share of absentees in India are decreasing, especially after 1991, the share of absentees in the Middle East and ASEAN countries is increasing. Recorded remittance inflow was as high as 25.5% of GDP in FY2015 and FY2016. It decreased to 22.7% of GDP in FY2023. 

Increasing outmigration

Large scale outmigration and subsequent remittance inflows have been defining features of the economy. The total absentee population, defined as those absent from household and gone abroad for more than six months before the census date, increased to 2.2 million in 2021, which is over 3 times the number in 1991 (before the Maoist insurgency). Of the total absentee population in 2021, 82.2% were male and 17.8% female. The share of male and female migrants in 2011 (1.9 million total absentee population) was 87.6% and 12.4%, respectively, indicating the more outmigration is being popular among females as well.

Most of the absentees were out of the country due to salary or seeking job (77.3%), followed by dependent (10.4%), and study or training (9.6%) among others. The share of absentees who identified study/training or dependent has increased compared to 2011 (5.8% and 6.8% in 2011), indicating the preference for study or training abroad (consistent with the increase in ‘no objection’ letter for abroad study or training), and spouse or children following their partner or parents abroad.

About 30% of the absentees in 2021 were of the 20-24 age group, and 76% of the 15-34 years age group, indicating the most of the outmigrants are young and the most active among the working age population. The largest number of absentees are in the Middle East countries (36.7%), followed by India (34%), ASEAN including Malaysia (9.1%), and other Asian countries (5.7%) among others. Among the absentees in the 15-35 age group, 38.8% are in the Middle East, 29.8% in India and 9.8% in ASEAN (including Malaysia). 

Historical trend shows that while the share of absentees in India is decreasing, especially after 1991, the share of absentees in the Middle East and ASEAN countries is increasing. It reflects the liberalization in passport issuance, and various push factors such as the lack of opportunities at home (alternatively, the opportunities in destination countries), and the political instability including the decade-long insurgency. 

Migration destinations have been shifting towards advanced countries as well. For instance, the share of absentees in European countries (including the UK) increased to 5.1% in 2021 from 1.6% in 2001. In Australia (popular amongst students and skilled workers) and Pacific countries, it increased from 0.3% to 4.3% over the same period. In USA and Canada, it increased from 1.3% to 4.0% over the same period. 

Almost 95% of those who went to the Middle East identified job (salary/wage, seeking job) as the main reason for being absent. Similar is the case with ASEAN countries. About 75% of the absentees who were in India identified job as the main reason. In the case of Australia, 70.3% identified study or training as the main reason. In USA and Canada, this was 41.0%. 

About 32% of the absentees were out for 1-2 years, and 27.5% for 3-5 years. It means that about 70.5% of the absentees were out for less than 5 years. Another 25.9% were absent for between 6 and 24 years. 

About 70% of the absentees had education up to SLC level (grade 10), 17% intermediate, 5.3% graduate, and 1.9% postgraduate. 

Annual outmigration

Data from the Department of Foreign Employment (DOFE), which records those migrant workers that take labor permit to work overseas, shows that outmigration is picking up pace after continuous decline since FY2015. It decreased to just 72,081 in FY2021. However, as international travel eased and economies started opening, outmigration has increased to level (497,704) close to the peak outmigration in FY2014 (527,814). About 44.1% of the migrants went to Malaysia, followed by UAE (11.9%), Saudi Arabia (11.2%), and Kuwait (4.0%) among others. 

Recorded remittance inflow was as high as 25.5% of GDP in FY2015 and FY2016. It decreased to 22.7% of GDP in FY2023.

Structural transformation in Nepal: Employment, sectoral shift and labor productivity

Based on the population census and national accounts data (also see blog post on demographic dividend), this blog post highlights key features related to structural transformation (employment, sectoral shift in output). Overall, the share of employment in agriculture is decreasing, but the share of employment in services in increasing. Industry sector's share in employment is recovering, but it is still below the peak in 2001, after which the political instability along with the intensification of the Maoist insurgency, power cuts, and poor industrial relations decreased its share in employment and GDP. It started to recover in the last decade. 

The sectoral shift in GDP follows the pattern in sectoral shift in employment but the pace of change is not commensurate -- services sector value added GDP grew at a faster pace than its share in employment, and industry's share in employment decreased at a faster pace than the decrease in its share in GDP. It means that the largest sector in GDP and its expansion was not jobs centric.

Labor productivity barely increased between 2011 and 2021 and productivity growth was negative in all sectors, with the highest dip in industry sector. At the broad economic activity level, labor productivity was positive in mining and quarrying; manufacturing; and public administration, defense, education, and health, etc. Manufacturing’s share in employment and GDP has decreased, but labor productivity has increased. Construction’s share in employment and GDP has increased but labor productivity has decreased. Labor productivity in wholesale and retail trade has reduced but its share in employment and GDP has increased. 

Structural change: sectoral value added and employment.

The share of employment in the agriculture sector is decreasing but the share of employment in the services sector is increasing. However, the shift in employment does not match the pace of shift in sectoral value added. The population census includes those who were employed as well as those not usually active in the last 12 months before the census date in employment figures, i.e. they had performed any economic activity in the reference period.

1981: The share of agricultural value added in GDP was 60.9%, industry 12.4% and services 26.7%. The share of employment (as a share of those that had performed any economic activity in a reference period of the last eight months or 12 months before census date) in agriculture, industry and services sectors was 91.1%, 0.6% and 6.4%. The remainder did not state sectoral employment.

2001:  The share of agricultural value added in GDP was 36.6%, industry 17.3% and services 46.1%. The share of employment in agriculture, industry and services sectors was 65.7%, 13.4% and 20.7%. The remainder did not state sectoral employment. 

• Note that between 1981 and 2001, while the share of both agricultural employment and gross value added decreased almost by the percentage points, the share of industry sector employment increased faster than the increase in its share in GDP (14.3 vs 4.9 percentage points). Meanwhile, services gross value added in GDP grew at a faster pace than the share of services employment. 
• In essence, between those 20 years, the industrial sector exhibited jobs-centric growth.  

2011: The share of agricultural value added in GDP was 33.4%, industry 14.5% and services 52.0%. The share of employment in agriculture, industry and services sectors was 64.0%, 9.5% and 24.0%. The remainder did not state sectoral employment. 

• Note that between 2001 and 2011, the shift in agriculture (as a share of GDP) was faster than the shift in agriculture employment (decrease by 3.1 percentage points versus 1.7 percentage points). While industry’s share in GDP decreased by 2.7 percentage points, employment in industry sector decreased at a steeper rate of 3.8 percentage points. Meanwhile, services’ share in GDP increased by 5.9 percentage points but employment increased by 3.3 percentage points. 
• In essence, the industrial sector was not jobs centric as the decrease in employment was faster than the decrease in its share of GDP. Likewise, the gain in employment in the services sector was at a lower pace than the increase in its share of GDP.

2021: The share of agricultural value added as a share of GDP was 36.6%, industry 17.3% and services 46.1%. The share of employment in agriculture, industry and services sectors was 65.7%, 13.4% and 20.7%, respectively. The remainder did not state sectoral employment.

• Note that between 2011 and 2021, pretty much the same trend held like in the previous decade, and the share of services sector in GDP grew at a faster pace than its share in employment, indicating that the services sector growth was not jobs centric.

So, what were the structural changes in the last 30 years, the period which endured the Maoist insurgency, the overthrow of the Shah dynasty, the transition to a federal democratic republic, catastrophic earthquakes, and COVID-19 pandemic. 

While the share of agriculture and industry in GDP decreased, the share of services sector increased. The share of employment in these sectors also followed the same pattern, but at a varying pace. The agriculture sector’s share in GDP decreased from 47.7% in 1991 to 25.8% in 2021. The industry sector’s share in GDP decreased from 17.5% in 1991 to 13.8% in 2021. However, the employment in this sector increased from 2.7% to 12.6% in 2021. Employment between 1991 and 2001 increased but as the political instability intensified, it decreased between 2001 and 2011 and then recovered between 2011 and 2021. The services sector’s share in GDP increased from 34.8% of GDP in 1991 to 60.4% of GDP in 2021. Employment in the sector increased from 15.1% to 30.0% of the total employed over the same period. 

The overall trend is that agricultural value added and agricultural employment followed almost the same pattern (decreased by 21.9 percentage points and 23.9 percentage points), but there was employment gain in the industry sector despite a decrease in its share in GDP (9.9 percentage point increase versus 3.7 percentage point decrease). The services sector GVA grew at a faster pace than employment in the sector (increase by 25.6 percentage points versus 14.9 percentage points).

What could be the underlying reasons for these changes? The rural-urban migration has impacted agriculture activities and employment. In the industry sector, the share of employment is the highest in construction sector (8.1% in 2021 compared to 0.5% in 1991), indicating the boom in real estate and construction activities that were driven by the inflow of remittances. The share of employment in the manufacturing sector declined from a high of 8.8% in 2001 to 3.8% in 2021. This sector was one of the most affected by conflict, and policy as well as political instability, leading to fast erosion of cost and price competitiveness to imported goods. In the services sector, most people are employed in the wholesale and retail trade and repair of motor vehicles and motorcycles activity (12.5%), which also is the largest services sector activity as a share of GDP. About 2.2% were employed in transportation and storage, and 2.9% in education. 

FYI, in 2021, about 8.6 million people were employed in the agricultural sector, 2.0 million in the industry sector (of which 0.5 million in manufacturing and 1.2 million in construction), and 4.5 million in the services sector (of which 1.9 million in wholesale and retail trade). It includes those who had done any economic activity in the reference period (employed [10.3 million] and those not usually active [4.7 million]).

The number of hours worked has also decreased. About 65.5% of those who did economic work worked for 6 months and above, 18.2% between 3-5 months, and 16.2% less than 3 months. In 1991, 91.3% of those engaged in economic work worked for 6 months and above, 6.0% between 3-5 months, and 2.2% less than 3 months. It may, again, reflect the increasing trend of outmigration among youths, who tend to engage in a particular economic activity as a stop-gap measures to sustain livelihoods while in Nepal, and then immediately leave for work or study abroad once opportunity arises. 

Most of the workers are in low productivity, low skilled occupations such as agriculture, forestry and fishery (50.1%) and elementary workers (23%). 

Of the 9.0 million people who did not do any economic work, 46.9% said it was because they were student, 21.9% due to household chores, and 11% due to old age.

Census versus Nepal Labor Force Survey (NLFS) III: These may be different from the estimates in NLFS III, which estimated population at 29 million in 2018 itself. The working age population was estimated at 20.7 million (around 71% of the estimated population). 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 labor force consists of individuals who are employed and those that are considered unemployed. The unemployment rate was estimated to be 11.4%. 

On sectoral employment, NLFS III showed agricultural, industrial and services has 21.5%, 30.8% and 47.4% employment share. Compared to the census 2021 data, the share of employment in agriculture is lower, industry and services higher. It may be because the definition of employment is narrower in NLFS III— the new definition of employment includes only work performed for others for pay or profit, i.e., production for own final use is not considered as employment.

Labor productivity

Let us compare labor productivity (real GDP in census year/number of people who performed any economic activity as recorded in the census) at constant FY2011 prices. 

Overall labor productivity barely increased between 2011 and 2021. It was NRs157,028 in 2011 and NRs159,832 in 2021. Between 2011 and 2021, labor productivity growth in all sectors (agriculture, industry, and services) was negative. 

At the disaggregated economic activity level, labor productivity was positive in mining and quarrying; manufacturing; and public administration, defense, education, and health, etc.

Comparing labor productivity and share of employment, we see that labor productivity in wholesale and retail trade has reduced but its share in employment and GDP has increased. Manufacturing’s share in employment and GDP has decreased, but labor productivity has increased. Construction’s share in employment and GDP has increased but labor productivity has decreased. Finance, insurance, and real estate activities share in employment and GDP has decreased, but labor productivity has increased. In fact, within it as well, it is real estate business activities, and professional and technical activities that are driving this activity’s high labor productivity.

Population structure and demographic dividend in Nepal

Based on the population census data, this blog post highlights key features related to population, and its structure and evolution. Overall, the population growth rate is declining, working age population is increasing, dependency ratio is decreasing, and new entrants to the labor market are almost peaking. The demographic dividend may not last long unless the enabling policy and institutional environment are created along with investments in critical physical and social infrastructures. Gradually, new entrants to the labor market will decrease, dependency ratio will increase (as 65 years and above population increase), and working age population will shrink. It will not be an ideal situation for a country with low per capital income and the vast untapped opportunities.

Population structure

Population growth is slowing down. In 2021, the population of Nepal was 29.2 million (of which 49% are male and 51% female), up from 26.5 million in 2011. However, the population growth rate was 0.92% between 2011-2021, down from 1.35% between 2001-2011.

The number of households is increasing but the average household size is decreasing, indicating the increase in nuclear families (or the decrease in joint families). There were 6.7 million households with an average household size of 4.4 in 2021. These were 5.4 million and 4.9 in 2011, respectively.

Urban population constituted 66.2% of total population, up from 63.2% in 2011. Note that the definition of urban area was changed after the country adopted a federal structure of governance. The number of urban municipalities increased from 58 in 2013/14 to 293 in 2017/18.

Madhesh and Bagmati provinces each have 21.0% of the total population, Lumbini 17.6%, Koshi 17.0%, Sudrupaschim 9.2%, Gandaki 8.5%, and Karnali 5.8%.

The highest populated districts are: Kathmandu 6.6%, 4.0% Rupandehi, 3.7% Morang, 3.3% Kailali, 3.1% Jhapa, and 3.1% in Sarlahi.

Literacy rate has increased, but there is wide gender disparity. Among males 10 years and above, 83.6% are literate, but it is just 69.4% among females. These were 75.2% and 57.4%, respectively, in 2011.

Demographic dividend

The working age population (15-64 years) is increasing, reaching 65.2% of total population in 2021 or 19 million people. The population below 15 years of age is decreasing (reaching 27.8% of total population or 8.1 million people) but those 65 years and above are increasing (reaching 6.9% of total population or 2 million people). In 1991, these were 54.1% and 3.5% of the total population, respectively. 

The increase in working age population also means that the dependency ratio is decreasing (from 84.7% in 1991 to 53.3% in 2021). Dependency ratio is defined as the dependent population (0-14 years plus 65 years and above) per 100 productive population.

The declining population growth rate and dependency ratio, rising life expectancy along with declining fertility and child mortality, and gradually peaking working age population indicate that Nepal may be hitting the unique point where it could exploit this demographic change to spur economic growth (or demographic dividend), i.e. more people to work and fewer people to support. 

Seizing this opportunity would require reorienting policies to facilitate a meaningful structural transformation, whereby high-value added sectors (such as industry, high value agriculture, ICT, travel and tourism, healthcare, education) dominate the economic structure, resulting in higher jobs-centric and inclusive growth and higher productivity. Adequate supply of affordable and competitive hydroelectricity, better connectivity including logistics network, human resources development through investment in education and healthcare, social protection, and political as well as policy stability would be critical for that.  Else, this demographic bulge will continue to be a burden to the economy, resulting in large-scale outmigration for work or study overseas. The benefits of a demographic dividend are not unconditional.

Given the decreasing population growth rate, this could also be an indication that the working age population will soon peak because the population below 15 years of age is decreasing. The 65 years and above population will gradually increase, burdening the public social protection scheme. 

New entrants to the labor market

About 2.0% to 2.5% of the total population enter the job market annually. In 2021, about 607,128 entered the labor market (basically those who turned 15 years old in 2021). There were already 18.4 million population in the job market (basically those between 16-64 years old). About 246,944 exited the job market (basically those above 64 years of age). In 2011, 652,525 youths entered the labor market. 

The lack of adequate job opportunities or better career prospects and higher wage premium abroad are some of the push factors for large-scale outmigration of working age population. More on this specific topic in the next blog post.