Informal Employment – Major Challenge for Nepal’s Economy



The International Labour Organization (ILO) has launched the third edition of Women and Men in the Informal Economy Report this week. As per the report, world’s two billion workers – about 61.2 percent of globe’s employed population – are in informal economy. This data for Asia-Pacific Region is even higher. The region houses 1.3 billion workers, 68.2 percent of region’s total workforce, who are in the informal employment. Globally, Africa tops the list followed by Arab States, Americas, and Europe and Central Asia where 85.5, 68.6, 40 and 25.1 percent of employment is informal respectively. In addition, 93 percent of globe’s informal employment exists in emerging and developing countries like Nepal. Also, men (63 percent) are found to be more into the informal employments than their women (58.1 percent) counterparts. Of 2 billion people employment informally, only 740 million are women.

As per the report, Nepal has one of the highest proportions of informal employment in the world, highest in the Asia-Pacific Region, with over 94 percent of country’s workforce engaged in informal jobs. In Nepal, 90.7 percent of such jobs are in the informal sector (IS) followed by 3.4 percent and 0.2 percent in formal sector (FS) and in household (HH) jobs respectively. In terms of gender distribution of informal jobs, Nepal’s 90.7 percent of men are in informal employment (85.2 in IS, 5.3 in FS and 0.2 in HH) as compared to 97.5 percent of Nepali women in similar works (95.6 in IS, 1.7 in FS and 0.3 in HH). These facts are just contrary to the existing global trends and highlight why concerned authorities in Nepal should priorities female workers when making intervention to transform country’s informal economy into the formal one. Similarly, 95.8 percent (93.3 in IS, 2.4 in FS and 0.1 in HH) of Nepal’s rural workers are in informal jobs. As expected, 94.3 percent (90.7 in IS, 3.4 in FS and 0.2 in HH) of country’s urban workforce is undertaking informal occupations. Sector wise, 99.5 percent (99.2 men and 99.7 women) of individuals in Agriculture sector are in informal employment. Likewise, the Industry and Services sectors have 90.8 percent (88.3 men and 95.8 women) and 73.7 percent (70.3 men and 80.6 women) people holding informal jobs.

As Nepal is yet to measure the precise size of country’s informal economy, it might be too early to predict real implication of this sector on Nepal’s overall economy. However, from past studies and available media reports, we can clearly understand that the size of Nepal’s informal economy is substantially large and its net implications on national economy are often underestimated. We all hope that ongoing Economic Census would, to some extent, collect and distribute adequate data that help us to quantify country’s informal sector and thus take necessary interventions. As highlighted by this year’s ILO report and past studies, Nepal’s large rural population, extreme poverty, poor education, and inadequate enforcement of existing laws and policies are some of the crucial factors that have long been promoting and protecting nation’s informal economy. Thus, as the government authorities remains busy collecting and processing economic data for the Census, it is also appropriate for them to identify key barriers that often hinder “informal economy – formal economy” transformation in the local context and then plan and take needed interventions.

Featured photo courtesy: Wikipedia

Jaya Jung Mahat

About Jaya Jung Mahat

Jaya is a researcher at Samriddhi where he leads a research on public debt management in Nepal. He has an MPP from Lee Kuan Yew School of Public Policy, National University of Singapore and is also an alumnus of Evidence for Policy Design, Harvard Kennedy School's BCURE Program.