One of the major challenges faced by enterprises in Nepal is caused due to labour related issues. Due to the sectorial bargaining of the trade unions, the wage rate of labour has increased manifolds in the past. This sectorial bargaining which increased the wage rate is binding to all the firms in the industries including cottage and small. So, the wage rate of the labourers has been increasing in a regular time interval but labour productivity has remained the same. This trend has specifically inhibited the growth of carpet industry. Many cottage and small firms in the carpet industry have been forced to employ the labourers informally as they are unable to pay this increased wage to the formal labourers. Labour costs in Nepal are the highest in all of South Asia, with a total annual cost per worker of U.S Dollar (USD) 1,889, compared to a cost in Sri Lanka of USD 1,619, Pakistan of USD 1,052, India of USD 943, and Bangladesh of USD 789. Between October of 2010 and October 2011, labour costs have increased by 35% for carpet manufacturers in Nepal.