Kathmandu university school of management

Balkumari, Lalitpur

Policy Review V

Labour and Employment Policy, 2062

Submitted to:

Mrs. Anupama Pant

Faculty of Economics

Submitted by:

Khusbu Agrawal

Section C, 2nd Year BBA

18706

Date of submission: 26th April, 2020

Table of Contents
BACKGROUND..................................................................................................................................... 3
SUMMARY ............................................................................................................................................ 5
ANALYSIS OF POLICY ........................................................................................................................ 8
PROS OF POLICY.............................................................................................................................. 8
CONS OF POLICY ........................................................................................................................... 10
EFFECTIVENESS OF POLICY........................................................................................................ 12
INEFFECTIVENESS OF POLICY.................................................................................................... 16
POLICY SUGGESTIONS/SOLUTIONS .............................................................................................. 19
MANAGERIAL IMPLICATION .......................................................................................................... 22
REFERENCES...................................................................................................................................... 23
HONOR CODE..................................................................................................................................... 24
BACKGROUND

Labor is the amount of physical, mental, and social effort used to produce goods and services in
an economy. It supplies the expertise, manpower, and service needed to turn raw materials into
finished products and services. The economy runs most efficiently when all members
are working at a job that uses their best skills. Essentially, employee and Labor Relations assists
with general management regarding developing, maintaining and improving employee
relationships via communication, performance management, processing grievances and/or
disputes as well as interpreting and conveying policies. In this context, it becomes the State’s
responsibility to build an environment that enables a life that is full of dignity, exploitation-free
and just with at least the minimum social and professional security by ensuring access to income-
generating employment opportunities for all citizens of the country without discrimination.

In the eve of World War II, the opening up of a few industries based on the probabilities of high
profitability during war-time conditions, and the establishment 3 of an industry council, were the
beginnings of modem industry in Nepal. It is also the elementary point of the rise of the
industrial working class in the modem sense. Although some rules and regulations for the
industrial sector, as necessitated by the establishment of various industries during the period, had
come into existence, nothing in the history can be found on labour laws and related issues. As the
war came to an end, changes in the war period supply conditions caused many industrial
enterprises to incur losses and many of them closed. The first workers' movement was carried on
by the newly rising class of industrial workers in Biratnagar resulting in political change of 1951.
However, after 1951, nothing was done in connection with labour policy even though an effort at
a planned economic development had begun in 1956. Only in 1959 did the Factory and Factory
Workers Act come into existence.

The Government of Nepal enacted the new Labor Rules 2075 (2018) ("Labor Rules"), which are
formulated under the new Labor Act 2074 (2017) ("Labor Act"). The Labor Rules came into
effect immediately. The Labor Rules repealed the previous Labor Rules 2050 (1993), which
were in force for over two decades. The Labor Rules provide additional guidance on various
provisions in the Labor Act.

Eventually, Government of Nepal has formulated and enforced the ‘National Labour Policy
2056. The policy served and aided the Nepalese economy to take the concrete shape, child labor
policy and various range of institutional framework were established. However, the changing
need of the labor market and technological sectors gave birth to several issues which couldn’t be
addressed by the existing policy. Some of the following challenges were the faced by the labor
market of Nepal that hampered the economy as mentioned below:

• Inability to create new jobs due to the low rate of economic development.
 • Lack of co-ordination between employment policy and its implementation.
• Absence of reliable statistical information on labour situation.
• Shortage of basic skilled manpower.
• Lack of consistent policy and regulations for foreign employment.
• Political instability
• Industrial insecurity
• Old and scattered laws
• Discrimination and inequality among the caste and culture of labor
• Excessive bureaucracy

To address all these issues, balance should be maintained between an accommodating market
policy, a national work plan on decent work, social security system and financial efficiency. The
need for revising the existing policy and legal provisions in order to face the emerging
challenges, after internalizing the changes in the labour and employment sector, has been
articulated during social dialogue.

Consequently, to address the changes and issues of emerging technology, globalization, security
and so forth, this Labour and Employment Policy 2062 was promulgated. The policy aims to
alleviate poverty through the creation of income generating employment by exploring and
tapping the new opportunities and potentials of labour and employment sectors. The policy also
has a vision of developing friendly environment for investment that would support the industrial
infrastructures which will help Nepal compete and sustain in global economy.
SUMMARY

The Labor and Employment Policy 2062 has been promulgated response to the felt need for
attaining the goal of alleviating poverty through the creation of income-generating employment,
as put forth with priority by the Ninth and Tenth Plans, to face the existing challenges by
exploring and tapping the new opportunities. The policy has a long term objective to provide
productive, exploitation free, decent, non0discriminatory work opportunities. It also aims to
build friendly environment for the investment that will ultimately support the nati0onal
economy.

The major objectives of the policy are:

1. To ensure sustainable development through full employment and investment friendly

environment.
2. Eliminate the forced labor practices, bonded labors by establishing the congenial labor
relations through gradual introduction of international labor standards
3. Make the labor market safe, healthy and competitive
4. Enhance the prospects of employment and self-employment by developing skilled human
resources
5. Ensure equal access of women, dalits, indigenous nationalities and the displaced people
to employment
6. Eliminate child labor

Strategy related to objective 1

The approach puts emphasis on labor intensive employment sectors and decent foreign
employment. The strategy also deals with the labor migration, employment promotion and so on.
The strategy also emphasize on the generation of self-employment opportunities by developing
entrepreneurship and micro enterprises. The plan also says necessary provisions shall be inserted
in the current labour law with the consent of social partners. Moreover, efforts are to be made to
build an environment that discourages activities such as strikes and picketing in industries.
Furthermore, necessary facilities as well as suitable legal provisions shall be granted for the
expansion of industries, promotion of investments and augmentation of employment.

Strategy related to objective 2

The strategy talks about adopting the policy of dignity of labor. The policy basically talks about
rights and legal provisions that are related to the labor. The prohibition of exploitation of rights
of labor and workers is taken into consideration. The programs are to be conducted to remove
gender, sectoral, ethnic and other forms of discrimination prevalent in employment sector. The
strategy also lays importance on equal and balanced representation in all bipartite and tripartite
mechanisms, along with capacity enhancement of social partners. In addition to that, necessary
legal provisions shall be streamlined and enforced for the protection of the rights and
entitlements of the workers engaged in the informal sector.

Strategy related to objective 3

The strategy focuses on the expansion of social security expansion through coordination of
government and social partners. The workplace shall be made safe, healthy and productive by
promoting occupational health and safety. Labor market flexibility, comprehensive and
integrated system of social security, balance between elasticity and investment environment, safe
,healthy and productive workplace, flexibility in the appointments, conduction of social welfare
programs, training on safety and health, awareness regarding HIV/AIDS, building of the
favorable public opinions are some of the strategies to make the labor market safe, healthy and
competitive.

Strategy related to objective 4

In order to fulfil the requirements of economic system and labor market, quality vocational
training and skill development training shall be made more effective. The vocational training and
skill development training programmes shall be decentralized to the extent possible by linking
them with the demands of the training practitioners and groups with specific needs. Reduction of
the demand for foreign workers, priority on vocational training and decentralization of these
trainings, short-term trainings related to subject matter, guidance for school drop-outs, building a
linkage between training and services of the labor, enhance the relevancy and efficacy of these
trainings are some of the strategies.

Strategy related to objective 5

The policy focuses on enlarging the employment and self- employment opportunities for the
youth, women, indigenous people, Dalits, elderly, backward sections, etc. Gender awareness
shall be enhanced in work, at the workplace and among social partners, and gender balance
maintained in the workforce. Opportunities for merit- based employment, targeted programmes
to generate employment opportunities, adoption on global standards of gender equality, access of
women on all sectors, development of necessary infrastructure, gender awareness at workplaces,
stringent rules for sexual harassment, family-friendly working environment for women, etc are
some of the plans of the strategy.

Strategy related to objective 6

Cordial relations with the sectoral work plans are to be initiated for the protection and
development of children in order to eliminate child labor by developing alternatives. Co-
ordination of national and international organizations, classification of child labors, assessment
of institutional frameworks, development of special sectoral programs, conduction of child labor
related programs, partnerships between government of Nepal, local agencies and donor
community are the policies of this plan.

Strategy related to objective 7

Different policies related to capacity building, expansion, system improvement of the offices,
boosting morale of personnel, etc. are to be carried out. Enhancement of legal rights and
institutional capacity of local agencies, human resource development through promotion, fixing
of minimum remuneration, integration of all the programs in the national database, involvement
of competent agencies of private sector, resolving of industrial disputes, involvement in factory
inspection, conduction of research and development, etc. are some of the activities to be
implemented mentioned under this policy.
ANALYSIS OF POLICY
PROS OF POLICY

Increase in aggregate demand

The development of employment oriented infrastructural programs, generation of
entrepreneurship and micro enterprises requires government expenditures and contribution in the
economy. One of the various strategies of the policy is to generate additional employment by
conducting employment oriented and infrastructure building and local development programs
such as health, irrigation and so forth. These activities increase the expenditure of government as
well as ensure higher employment rate in the economy as shown in the diagram below:

The diagram above shows the general price level on y-axis and real GDP on x- axis. The increase
in aggregate expenditure shifts the AD curve from AD1 to AD2. It consequently increases the
real GDP from Y1 to Y2. This scenario also depicts that the employment has increased in the
economy.

The increased government spending may create a multiplier effect. If government spending
causes the unemployed to gain jobs, then they will have more income to spend leading to a
further increase in aggregate demand. (e.g. construction workers employed by government
increase spending in pubs and transport, causing other sectors of the economy to benefit from the
government spending). In these situations of spare capacity in the economy, government
spending may cause a bigger final increase in GDP than the initial injection.
Virtuous cycle of poverty
The policy has a clear motto to alleviate poverty by developing and ensuring employment to the
people of every community. The policy not only aims to reduce unemployment but also provide
safe working environment to the people along with self employment facilities for better income
generation. This in conclusion leads to reduced poverty and better standard of living. Since the
policy also safeguards fair and competitive laws for labors, there exists greater participation of
them to build national economy. They are encouraged and motivated if they are paid reasonable
wages to sustain their life. Furthermore, better opportunities and higher wage rates encourages
the workers and incentive to work is higher. Incentive plays a great role in the development of
the economy which consequently leads to a virtuous cycle of poverty.

Basically, the trainings and education facilities provided to the people of all age group, abilities
and capacities, increase their capabilities. This in turn increases the demand of labor in the
economy, they get employed, have a better source of income and consumption in the economy
increases. Now, the higher income and higher consumption leads to increased demand of goods
in the economy. The productivity of the industries increases the economy and higher investment
can be seen. Thus, there is better and improved efficiency in the economy which leads to the
virtuous cycle in the economy.
CONS OF POLICY

Inflation
The policy aims to increase employment through various special policies for different groups of
people who are under privileged and always suffer in the development process such as women,
marginalized group, Dalits and so forth. The government also emphasize on the better
development and enhancement of cottage and small scale industries. These majors taken by the
government are beneficial to the economy on one hand as it reduces the income inequality and
everyone gets equal opportunities to develop themselves. However, on the other hand, the
policies might lead to inflation in the economy as shown in the graph below:

The graph above shows the unemployment on x axis and inflation on the y axis. The curve
represents the Philips curve which shows the negative relation between inflation and
unemployment. As shown in the graph, when the inflation is higher. The unemployment rate is
lower and vice-versa. The higher rate of inflation is not good for the economy because
consequently the economy is hampered. To begin with,

• Inflation reduces the purchasing power of the currency and reduces the consumption
• Unfortunately, the urge to spend and invest in the face of inflation tends to boost inflation
in turn, creating a potentially catastrophic feedback loop.
• High inflation may also lead to higher borrowing costs for businesses and people
• High inflation can lead to an increase in pay claims as people look to protect their real
incomes. This can lead to a rise in unit labour costs and lower profits for businesses.

Thus, decreased unemployment and increased inflation may affect the economy severely in
the long run as mentioned above.
 Corruption
Corruption is a constant in the society and occurs in all civilizations. Corruption thus inhibits
economic growth and affects business operations, employment and investments. It also
reduces tax revenue and the effectiveness of various financial assistance programs. It is
prevalent in every sector of economy of Nepal. This is one of the major reasons why the
policy fails to function to its optimum capacity in Nepal. The corruption of the officials
reduces the incentives of the people to function to their optimum capacity. They are
discouraged to function well and efficiently. Thus, it in a way reduces the industrial
efficiency also. It further leads to an inefficient allocation of resources, poor education, and
healthcare or the presence of a shadow economy. With the rent seeking behavior of the
various parties, there arises deadweight loss in the economy as observed in the following
figure:

The misallocation of resources and illegal use of available resources affect the working policies
of the organizations. All of these activities discourage the workers and the supply reduces from
S1 to S2 as shown in the diagram. The shaded reason shows the dead weight loss as the quantity
produced and supplied decreases. Thus, corruption negatively affects the economy. It is a major
obstacle to economic development. It reduces domestic investment, discourages foreign direct
investment, inflates government spending, and shifts government spending away from education,
health, and infrastructure maintenance toward less efficient (more manipulative) public projects.
EFFECTIVENESS OF POLICY

Increase in employment opportunities

Since the policy has emphasized on providing trainings and resources for skill development of
the workers of various sectors, it has helped to develop the skills of labors that are available in
the economy. The strategy aims to provide job to jobless and reduce the prevailing rate of
unemployment. Moreover, the increased trainings and vocational education in the rural sectors
has encouraged the youths to engage in self employment. Furthermore, various policies are made
in favor of industrial sectors that has helped to establish new industries and increased the demand
of labor in the economy.

This has consequently increased the wage rate to be provided to the workers as shown in the
graph below:

The increased demand of labor has positively impacted the economy as it has helped in poverty
alleviation. The data below shows the rate of unemployment in Nepal. The unemployment rate
decreased significantly in the following years after the implementation of policy in the year 2010
and 2011.
Reduction in income inequality
The policy majorly focuses on providing equal employment rights and opportunities to the
deprived group of people. The emphasis has been placed on Dalits, women, differently able
people and so forth. Implementation of such policy by government has positively impacted the
economy as everyone gets equal opportunities. Moreover, foreign employment has significantly
contributed to poverty alleviation and has brought economic prosperity in many families living
in rural areas of Nepal. It has contributed to poverty alleviation by bringing economic prosperity
in rural areas of Nepal.
The graph above shows the Lorenz curve which depicts the scenario of income inequality in a
nation. The line of equality is a 45 degree line. The poverty of Nepal has reduced significantly
due to various policies that serve the poor ones. The Lorenz curve has, thus, shifted upwards
from red curve to yellow curve as shown in the graph above. The graph below shows the
reduction in income equality in Nepal.
World Bank Estimate data was reported at 32.800 % in Dec 2010. This records a
decrease from the previous number of 43.800 % for Dec 2003. Nepal’s NP: Gini
Coefficient (GINI Index): World Bank Estimate data is updated yearly, averaging 35.200
% from Dec 1995 to 2010, with 3 observations. The data reached an all -time high of
43.800 % in 2003 and a record low of 32.800 % in 2010.
INEFFECTIVENESS OF POLICY

Lack of national manpower planning

The labor and employment policy 2062 had some loopholes which made it difficult to attain the
goal of employability and poverty alleviation. One of such loopholes is lack of national
manpower planning. There is inefficiency between the demand and supply of human resource in
the country. There exist skill gap among the Nepalese people which has resulted in importing
skilled and expensive foreign labors, also exporting our unskilled labor to the overseas. The trend
of foreign employment is not really good for the Nepalese economy because the workers face
issues in the foreign nation for earning their livelihood.

Moreover, the another impact of increased foreign employment is that the remittance inflow has
not been utilized wisely in Nepal. The remittance is being used as consumption expenditure and
not as productive investment. Therefore, rather than acting as an economic stimulus, remittance
is just being used to meet the consumption needs of households. Another argument is that
remittance can also lead to brain drain in the labour supplying country. When a country depends
so much on outside sources to sustain its economy, it causes a culture of dependency, and the
economy becomes volatile. Any change in employment rules or the economy of the hiring
country can shake up the economy of the dependent country.

Fig: Picture showing proportion of skills possessed by Nepali people for foreign employment
This data shows the trend and the huge number of Nepalese workers of every skills moving to
foreign nation for the employment that has affected the economy of Nepal.

Child labor
Child labor is illegal and a criminal offense, but the actuality in practice and the text resonate
differently. The involvement of child labor is widely distributed in both formal and informal
sectors but the informal sector mostly hidden beyond the horizon has been a major breeding
ground for rampant child labor practices. The Nepal Labor Force Survey (2008) estimates 40.4
per cent of child population falls under economically active population and among these working
children almost 51 per cent fall under child labor category. Sometimes the cause of the problem
is assigned to the fact that 90% of the population lives in the rural areas and sometimes to
dependence of 81% population on subsistence agriculture. Whatever may be the cause of child
labor, it is stigmatic to live with the distinction of having a great number of child population
working as child laborers in the country.

"Though child labor is declining at the rate of 100,000 every year, Nepal still accounts for
1.6 million children between (5-17 years) in child labor. Of these 621,000 are estimated to
be engaged in hazardous work." (ILO Fact Sheet, 2015)

In the context of Nepal, child labor has affected the economy widely. Though the aim of policy
was to minimize such rates of child labor and work for their betterment, it has seemed to become
inefficient. The given figure below shows the impact of child labor in an economy:
The child labor leads to poor wages and inadequate education and skills. This further deteriorates
the labor standard of the economy and leads to adult unemployment as it is easier and less costly
to hire child laborers for the industries. Consequently, this leads to poverty and the cycle
continues.
POLICY SUGGESTIONS/SOLUTIONS
Some of the policy suggestions to remove and overcome the existing hurdles in the policy are as
follows:

Investment in education and skill development programs:

There exists skill gap in the functioning, which has created major problem in the implementation
of the policy. The theoretical knowledge is all that a graduate has in the context of Nepal. The
lack of major skills and vocational training is an issue for Nepal.

The compulsory education should be developed in Nepal. When everyone is educated, they can
change the world and go with the globalized world. Education is a merit good and its utilization
can lead towards positive externality. Hence, it is very essential to educate the Nepalese people
in every nook and corner. The traditional way of working would change if everyone is educated
the farming system, the eating habits, and the health facilities will change if proper education is
given to all. The better and quality education system will increase the production possibility of
the nation.

The figure shows that education, proper vocational trainings and skill based trainings can serve
as positive externality to the economy and positively impact the economy and national output of
the country. The impact of such investment by the government is seen as multiplier effect as it
creates virtuous cycle in the economy.
Better utilization of physical and human resources:
Corruption being one of the major problems behind failure or inefficiency of one of the many
policies in Nepal, should be reduced through implementation of strict rules and regulations.
Moreover, corruption in a way or other has affected the growth of economy and nation as a
whole. The misallocation of resources or under allocation of the resources is the hurdle that
economy is facing. The corruption not only hampers the political stability but also impacts and
reduces the incentives of people to work soundly.

Thus, government and the concerned authorities should collectively work and through
collaborative efforts try to reduce and eradicate corruption in the economy. If the corruption is
minimized in Nepali economy, the incentive to operate increases. Furthermore, it also improves
production and increases the national output. This in turn, invites and encourages foreign
investment in the economy. The diagram below shows the positive impact of reduced corruption:

The diagram shows the increase in supply and shift in the supply curve rightwards due to proper
utilization of resources be it human or physical. Thus, the output has also increased, and the price
of goods are also decreased. This further helps to balance the inflation rate of the economy and
the equilibrium is maintained. In a nutshell, corruption if reduced can have a positive impact on
the economy and lead towards development.
Proper flow of information about labor market
Workforce and labor market information is essential to the nation’s economy, providing for the
efficient operation of labor markets by supplying quality labor market intelligence. Accurate,
Objective, Relevant, Timely, and Accessible workforce and labor market information is critical
for: building a skilled workforce that spurs business competitiveness and economic growth;
strengthening career pathways and guiding skill attainment for good jobs, economic opportunity,
and career growth; and so forth.

For the foreign investors as well, good picture portrayed by the labor market information system
can be lucrative means for investment. It also reduces conflict among employees and employers
as there is no chance of mis-communication and terms and condition are well explained. This
helps to invite foreign investment and increase the national output as shown in the graph below;
MANAGERIAL IMPLICATION

As a student of management, we are enlightened with the fact that employees are the most
valuable assets for an organization. The morale, incentive and activities of employees play a
crucial role in the development of an organization and achieve its goal. Thus, we as a manager
ought to provide proper trainings and facilities to the workers for their development and
maximized efficiency. Moreover, any kind of discrimination based on gender, caste, creed, etc.
should not be practiced for overall benefit of workplace and the employees. Furthermore, a good
regulatory system is important for the implementation of the policies in an organization.
REFERENCES

https://www.ilo.org/kathmandu/areasofwork/child-labour/lang--en/index.htm

https://www.google.com/search?q=impact+of+child+labor+on+economy&sxsrf=ALeKk00wYy
qRd1lBkJvAerNzGG8c8WW12g:1587881815146&source=lnms&tbm=isch&sa=X&ved=2ahU
KEwjx1aXcuIXpAhX1zTgGHasLC7YQ_AUoAnoECA0QBA&biw=1280&bih=610&dpr=1.5#i
mgrc=cJer9oApzCuWYM

https://www.nber.org/papers/w10134

https://www.doleta.gov/wioa/wiac/docs/Informational_Handout.pdf

https://www.cliffsnotes.com/study-guides/economics/aggregate-demand-and-aggregate-
supply/aggregate-demand-ad-curve
HONOR CODE
“On my honor as a student, I pledge that I have neither given nor received aid on this
assignment.”

Khusbu Agrawal