Labor Markets and Migration in Nepal: The Case of Workers in Kathmandu Valley

Carpet Manufactories
Author(s): Elvira Graner
Source: Mountain Research and Development , Aug., 2001, Vol. 21, No. 3 (Aug., 2001), pp.
253-259
Published by: International Mountain Society

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Mountain Research and Development Vol 21 No 3 August 2001: 253-259

Elvira Graner

Labor Markets and Migration in Nepal

The Case of Workers in Kathmandu Valley Carpet Manufactories 253

Nepal is witnessing a of trade, as labor markets for (semi) skilled workers usu-
transition from a pre- ally require a primary, if not a secondary, education.
dominantly agrarian Whereas the (urban) upper strata of society usually
economy to one have fairly secure access to both education and employ-
where nonagricultur- ment, the rural majority, ethnic minorities, and low-
al income opportuni- caste groups still have little or no education (Graner
%V ties are increasingly 1998) and uncertain access to unskilled or semiskilled
important. The signif-work. Although national economic policies aim at pro-
moting labor-intensive industries such as carpet produc-
r 4 icance of wage labor
in (semi)industrial tion in order to reduce negative trade balances and
production and in the increase employment opportunities and purchasing
service sector is growing rapidly. Along with these capacities, their success so far has been limited.
changes, there is increasing labor migration as part of To analyze the role of carpet production in labor
the population seeks work in labor markets in urban markets, a study was carried out, consisting of a quanti-
areas, both in Nepal and India or further abroad. Withintative survey of workers in Kathmandu (n = 995) and a
the Nepalese urban labor market, carpet production qualitative survey of workers in Kathmandu and Jhapa
evolved as one of the most prominent industries duringDistrict villages (n = 350). The quantitative survey
the early 1990s, experiencing high annual growth rates.focused on geographic, demographic (gender, age,
Yet this "gold rush" was followed by a dramatic decline family
in structure), and socioeconomic aspects (educa-
the mid and late 1990s that severely affected the indus-tion, food security) as well as working histories (year in
try and its workers. In order to analyze these processes,
which work was begun in Kathmandu, networks of
the author conducted an empirical study from 1996 access). The qualitative survey included a detailed list
through 1999 consisting of interviews with business peo-of family members (age, education level, work migra-
ple, workers, and officials from governmental and non- tion) as well as coverage of all workplaces in Kathman-
governmental organizations. The study showed that du, incomes, reasons for changing workplace, expenses,
declining income opportunities have drastically affectedand remittances to the household of origin. During the
savings and remittances. As a consequence, those (male) village studies, information collected in Kathmandu was
workers with access to more attractive labor markets supplemented by including migrants to other destina-
tions such as India or the Gulf states.
sought new destinations, particularly in the Gulf states,
whereas women workers have been left behind.

Agriculture, wage labor, and migration

Keywords: Migration; labor markets; carpet production;
livelihood strategies; remittance economy; Nepal. Despite the predominance of agriculture, landholdings
are extremely small for the majority of the population
Peer reviewed: April 2001. Accepted: May 2001. (Table 1; HMG/NPC/CBS 1993b). Larger holdings are
found only among (1) those who received a land grant
from the aristocracy at some point in history for reli-
Introduction gious (Brahmin), military, or administrative services
rendered (upper strata of either Chetri castes or ethnic
The Nepalese economy is characterized by the over- groups, such as Magar or Gurung), or (2) those who
whelming importance of agriculture (NESAC/UNDP were involved in collecting taxes based on scarce agri-
1998: 99) and has one of the world's highest rates of cultural profits (Regmi 1978; Graner 1997: 74ff). For
employment in this sector, estimated at about 93% bythe large majority of farmers, renting of (additional)
international sources (UNDP 1997: 183). Official land and/or wage labor, both within and outside agri-
national figures (HMG/NPC/CBS 1993a, 1997) are low- culture, has become increasingly necessary. Thus, about
er (81%) but still document the predominance of agri- 20% of all people active in the economic sector are
culture. Yet most farmers have increasing difficulty engaged in wage labor, as documented in the Nepal Liv-
ensuring a sustainable livelihood. They have to copeing Standard Survey (HMG/NPC/CBS 1997). At the
not only with declining yields but also with shrinkingsame time, there are great variations between daily
landholdings due to partition of inheritance and occa- wages in the different regions as well as between agri-
sionally to debt clearance. Moreover, the majority of thecultural and nonagricultural wages (Table 1).
Nepalese population is not particularly well equipped A significant proportion of those engaged in wage
for work outside the agricultural sector. Illiteracy is still
labor are involved in labor migration and work far from
very high (55.5%; HMG/NPC/CBS 1999: 23). This lim- home (Dixit 1997). Labor migration in Nepal has a
its access to labor markets and comprehension of terms long history. Its relevance for household budgets has

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Elvira Graner

TABLE 1 Agricultural holdings,

wage labor, and remittances.
254 (Source: HMG/NPC/CBS 1997:
Nepal Living Standard Survey
(NLSS) 1995/96, pp. 32-67)

Western Eastern Western Eastern Other urban National

Hills Hills Terai Terai Kathmandu areas average
Agricultural holdings

Average size of agricultural holdings (ha) 1.00 1.03 1.50 1.19 0.41 0.75 1.09

Holdings smaller than 0.5 ha (in %) 49.3 39.3 26.6 35.2 77.5 56.5 40.2

Daily wages (in NRs)

Agricultural wages 49 40 41 36 88 45 40

Non-agricultural wages 76 83 58 67 121 65 74

Daily agricultural wages as a percentage

of daily non-agricultural wages 64% 48% 71% 54% 73% 69% 54%
Migration and remittances

Percentage of households receiving remittances 30.8 13.6 22.9 26 18.9 20.1 23.4

Average annual value of remittances (In NRs) 15,806 19,508 8.736 12,508 33,620 27,561 15,160

Regional origin of remittances (in %)

Nepal: urban areas 13.1 56.1 8.7 29.8 48.1 41.5 32.6

Nepal: rural areas 27.4 29.9 50.6 31.8 29.8 30.9 25.8
India 55.3 9.6 40.7 36.4 2.5 20.4 38.2

Other countries 4.2 4.4 0 2 19.6 7.2 3.4

grown and is increasingly importa

fled south in the early 1960s. International donor agen-
1990s, an average of the
cies, for instance, 23%
International of
Red Crossall
Society
remittances from at least one source (HMG/NPC/CBS and later the Swiss Agency for Technical Assistance
1997: 63), with pronounced regional differences (rang- (SATA; now called Swiss Agency for Development and
ing between 13.6 and 30.8% of all households; Table 1).Cooperation, SDC), designed and financed programs
Remittance values are also highly disparate. They rangeaimed at securing the livelihoods of these refugees.
from a regional average of 8000 NRs for the Western Thus, carpet production was established at the 3 largest
Terai to more than 30,000 NRs in Kathmandu. There is Tibetan refugee camps in Nepal (Hagen 1975; Gombo
a high rate of domestic remittances, indicating the 1985: 98ff; ISD 1997; Graner 1999). In the 1970s, pro-
importance of internal migration (58.4% = 32.6% plus duction bottlenecks encouraged business people from
25.8%; Table 1). However, domestic remittances Nepal or of Tibetan origin to found new manufactories.
account for only 44% of the total value. Countries other
These new companies were not located within the
than India account for an extraordinary proportion camps, and labor force recruitment was not confined to
(almost 80,000 NRs, compared with 5000-15,000 NRs the relatively small group of refugees. By 1989, carpet
from all other regions). These countries are also the exports reached 1 million m2. During this period, the
source of a mere 6% of remittances but account for Rupee was (again) devalued, especially as a result of
23% of the total value. Nonetheless, these figures are implementation of the IMF/World Bank's Structural
much lower than the approximate 35-69 billion NRs Adjustment Program. Thus, growth rates in financial
estimated by Seddon et al (1998: 4, 6), which corre-terms ranged from 31 to 93% in the national currency
sponds to about 13-25% of the GDP. (NRs) and 17 to 86% in US$ (Figure 2).
These impressive figures, however, must be read
with caution. In order to save the economy from down-
Export-oriented carpet
ward pressure on prices, the Nepalese government
production and labor markets
introduced a so-called floor price for all export items in
The woolen carpet industry has been one of the most
the 1970s. In the case of washed carpets, this minimum
important labor markets in Nepal, especially during thewas 54 US$/m2 in the early 1990s. But many export
rate
(early) 1990s. Carpet manufacturing in Nepal (Fig-deals took place and still take place at unofficial rates
ure 1) received a major impetus when Tibetan refugees
(Khadka 1998). Exporters agree to reimburse their

Mountain Research and Development Vol 21 No 3 August 2001

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Research

IIS

oyc; 255
Yj
. ... .. ..

. . ..... ... . .... .

? ?o -, l-

?xgg .:tt ~L~4p

~Y"y

..'y

FIGURE 1 Young women weav-

ing in a manufactory in Kath-
mandu, November 1999. (Pho-
to by Elvira Graner)

partners with a certain amount of money via informal demand increased (to more than 3 million m2), pro-
channels (the so-called hundi system; unpublished con- duction was often subcontracted to smaller manufacto-
ference paper by Gurung, October 2000, Kathmandu). ries. Many exporters provided financial support to staff
Therefore, no data are available on the actual financial who had previously been in charge of their company's
value of carpet exports (Graner 1999). In addition toproduction (so-called loom masters). These could then
dramatically reduced prices, trade volume declined establish their own (small) manufactories. Thus, pro-
after 1993-1994 so that national statistics recorded a duction spread to small- and smallest-scale manufacto-
decrease in export values that has continued, with ries inter-
and even private households, where overhead costs
mittent years of recovery, until today. The reasons were much lower (O'Neill 1997: 139; Graner 1999:
were
manifold, including an oversaturated European market
207ff). Many other subcontractors entered the industry,
(due to overproduction in Nepal) and cases of without quality direct enticement from exporters, by raising
decline (use of recycled wool wastage). Above all, theirhow-
own capital. Yet all of these production units were
ever, public debate on working conditions andstill especial-
linked, directly or indirectly, to export markets.
ly on child labor had a devastating impact on the During image this time of increasing demand, even the
of Nepalese carpets. A previously exotic, natural prod- production units were in a favorable bargain-
smallest
uct was now stained by the sweat and tears of innocent ing position vis-a-vis their contractors because orders
children, bringing the "misery behind the looms"-as were usually tightly scheduled and had to be finished in
proclaimed by one of the most active NGOs fighting time, possibly at higher rates. Local-market rates rose
child labor (CWIN 1993)-straight into living rooms all
from 1150-1500 NRs/m2 during 1990-1991 to
over Europe. 1350-1750 NRs/m2 within 1 or 2 years while production
During the export boom of the early 1990s,costs increased less and at a later time. Hence, this was
carpet
manufactories sprang up like mushrooms throughout a time of comparatively high profits (100-300 NRs/m2;
Kathmandu Valley and demand for laborers, both Graner 1999: 209). This multilayered structure, howev-
skilled and unskilled, was enormously high. When er, had extremely negative effects when both demand

FIGURE
Nepal. (Source: TPC 1974)
12,000 250
o 10,000
0,uuu U
-- 0

" 8,000 M Carpet exports in US$ 150

0 .- n
6,000
-100 E
4,000 0
0-
2,00050 u)
50
0 0

.0c (> (j (

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Elvira Graner

256

and export prices plummeted during the mid-1990s. child labor has not yet been completely eradicated, they
Many of the larger exporting companies concentrated document the tremendous success of the fight against
production in their own factories. Overcapacity, cou- child labor in carpet manufactories.
pled with a drastic decline in demand from exporters, Laborers usually have low levels of education
meant that small-scale enterprises in particular were no (World Bank 1998: 4). According to recent field data
longer in a position to bargain for rates that could guar- (n = 991), 48.9% did not complete first grade and a
antee them a good profit margin (of only 20-150 NRs). total of 73% did not complete primary schooling (ie,
Thus, declining export volumes and reduced rates had less than fifth grade). Among women, the percentage
a devastating effect on local carpet production; this waswith no schooling was 69%. Educational levels also
slightly buffered by the devaluation of the Rupee when exhibit a distinctive regional pattern, with slightly high-
inflation set in later on. er levels among workers from the Terai (Figure 3).
Recruitment of laborers, especially during the
The labor force: boom period, was done via family/village networks and
middlemen. Many people already employed in the pro-
Young migrants from across the country
duction process brought along (younger) family mem-
This situation of the local carpet market has parallels bers or other villagers when returning to Kathmandu
on the labor market. The sharp rise in demand for after their annual trips home. These unskilled people
exports during the late 1980s and early 1990s led were to then usually trained for about 2-3 months, weav-
enormous demand for laborers, especially for theing labor-
the monochrome inner fields of carpets, while the
intensive processes of carpet production, such as skilledspin- workers executed the more complicated designs
ning of wool and weaving. Official sources estimate the
that required the ability to read design sheets (naxa).
number of workers at less than 100,000 (HMG/NPC/ During times of high demand, many manufactory own-
CBS 1994a,b), whereas sources generally quoted (albeit ers also engaged so-called thekkadars (contractors), peo-
inaccurate) claim that the labor force employed in car- ple responsible for recruiting laborers from their home
pet manufacturing totaled about 250,000-300,000 per- towns/villages or elsewhere. For this purpose, many of
sons (Shrestha 1991; Pradhan 1993; Sharma 1996). The them asked for advances from manufactory owners for
actual figures are likely to be about 60,000-80,000 the parents of newly recruited weavers. However,
weavers with an additional 30,000-40,000 persons for advance payments were usually not handed over to par-
spinning, carding, and dying of wool, cutting and wash- ents since they were not in a position to demand money
ing of finished carpets, and technical and managerial to have their children join the labor force in Kathman-
staff. By 1996, these figures had declined to some du. The village studies provided evidence that some
60,000-80,000 workers, about half of them women. thekkadars even asked for money from the parents in
The increase in demand led to an unprecedented order to accept responsibility and provide food for
wave of migration to Kathmandu Valley. Laborers usual- their children.
ly come from rural areas in districts adjoining Kathman-
du Valley, some from other eastern districts, and a few
Wages and remittances
from western Nepal (Figure 3). Analysis of age structure
reveals that the labor force consists predominantly of A relative shortage of labor, coupled with a steadily ris-
adolescent youths: 80% are 25 or younger and 52% are ing demand for laborers, meant that people searching
20 or younger (Figure 4). The percentage of young for work were in a relatively good position. Wages there-
people 14 and 15 years of age is low (5%), although fore steadily increased during this phase (Table 2) and
personal histories indicate that 199 persons (20%) were people taking up employment at a new workplace
under the official working age (younger than 14) when demanded advance payments (so-called peskii) (O'Neill
they started working. Within the labor force surveyed, 1997: 180ff). At the same time, workers were changing
no children declared that they were less than 14 years workplaces frequently, asking manufacturers to hand
of age; only a negligible number among those aged 14 over advances; sometimes they left before earning these
or 15 looked younger. This information is confirmed by advance payments. Data on duration of employment (n
a recent study on child labor that aimed to estimate the = 994) indicate that 46.6% had been working at their
ratio, magnitude, and regional pattern of child labor in current manufactory for a year or less. The trend was
Nepalese carpet manufactories (CPS/Rugmark 1999). even higher among men (54.8%).
The study identified 391 children under the age of 14 After the onset of recession, and with increasing
from a total labor force of 23,049 (1.7%). Among these concentration of production in larger manufactories,
children, 69.4% of all boys and 65.4% of all girls were workers experienced rapid deterioration of their bar-
between 13 and 14 years old, that is, were to come of gaining power. Dramatic declines in demand have led
age within a few months. Although these data show that to an enormous oversupply of laborers, with a concomi-

Mountain Research and Development Vol 21 No 3 August 2001

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Research

257

/ Region of origin and education level

of carpet weavers in 1998/99

I X_ "--- Kathmandu

--"- k Kaski * v

4-\ " / - oLamun Gorkha,:

Pyuthan RGuIm isuw

Number ofjung
0 -- l upandeh TapL persons na
35 K KNawalparasi Patanr
F iterates indhuli m
,,,3" , 'h an k uta /"
L Primary
Primaryschool (drop-outs) Rautahat-Saaa--(completed)
school 1 -Udayapur
Raahai--Sk catgadah.--r GI arlam
200
Ohana
r school
I Secondary )km Cartography:
(completed) Graner
0 50 100 Source: field data 1998/99 2000 Morang _hapa
FIGURE 3 Region of origin and
education of carpet weavers
(for 1998-1999).

47 E Men (illiterate)
42 Men (primary education)
42 II Men (secondary education)
38 O Women (illiterate)
34 0 Women (primary education)
30 Women (secondary education)
0) 30

26

22

18 . .

80 60 40 20 0 20 40 60 80
FIGURE 4 Age structure and
Number of cases (n=995) education of carpet weavers
(1998-1999).

TABLE 2 Wages for weaving (60-

1983-1984 1990-1991 1991-1992 1993-1994 1996-1997 1998-1999a knot) carpets and subsistence
costs per capita. (Sources: field
Approximate data 1996-1999; O'Neill 1997)
subsistence costsa No data 550 600 700 850 1000

Wages (NRs/m2) 180-200 220-280 250-350 280-380 300-400 350-450

Average monthly wages No data 1200-1500 1300-1600 1400-1800 1500-1900 1600-2200
Per capita subsistence
costs as % of wages No data 36-46 37-42 39-50 45-57 45-62
aAccommodation is usually provided; these costs include only food needs. They have increased
even further since 1999 due to a substantial rate of inflation (particularly for fuel).

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Elvira Graner

O13 Place not mentioned

258 M Kathmandu (carpet industry)
25 N Kathmandu (other)
20 Mi India
0 Gulf states
15

10

FIGURE 5 Destinations of
migrant laborers from their
home districts (1984-1999;
n = 133).

tant negative impact upon wages. Owners of small man-(Galaicha Majdur Union Samiti 1998; Graner 1999:
ufacturing units selling their carpets at local markets 213). Although 21 of 26 demands have so far been offi-
were driven to bankruptcy by increasing production cially agreed to, implementation is lacking.
costs and decreasing carpet prices. Manufactories were The labor market at the end of the 1990s was divid-
closed and unemployment increased. Child laborers in ed into (1) workers in exporting companies and (2)
particular were simply released, as it was euphemistical-workers in manufactories dependent on subcontract
ly phrased in an impact assessment study on implemen-orders. While the former have successfully voiced their
tation of the Labor Act abolishing child labor demands and achieved significant improvements, th
(ITAD/NASPEC 1994: 2), as they could most easily be latter face more severe difficulties. Their wages are low
replaced by adult workers in search of work. Since the er due to reduced bargaining capacity resulting from
mid-1990s, workers in carpet manufactories have expe- less regular orders (ie, higher underemployment), lo
rienced slowly rising nominal wages but highly infla- er quality products (60-knot carpets, whereas many
tionary costs of living, leading to a steady decrease in exporting manufactories produce at least some 80- a
real purchasing power. The price index for basic food 100-knot carpets), and low piece rates (350-400
items (1990-1999) was about 180% (NRB 1999), while NRs/m2 for 60-knot carpets, compared with exporting
the index for wages was about 150%. Thus, whereas themanufactories' 390-450 NRs/m2). Demanding highe
average wages of weavers were sufficient to cover the wages and/or other social benefits may improve a wo
subsistence needs of 2-3 persons in the early 1990s, by er's position in the shQrt term but risks increasing pro
the late 1990s, average wages only met the basic needs duction costs beyond economic viability, leading to f
of 1-2 persons (Table 2). In addition, infrequent and ther closures and unemployment.
low-volume orders resulted in underemployment and a
further decline in monthly wages.
Conclusion: A fragile domestic labor market
These circumstances have had a drastic negative
and competition on foreign labor markets
impact upon remittances. In the late 1990s, many work-
ers, especially families, had to use most of their earn- Income conditions in carpet manufactories have seve
ings to cover living expenses in Kathmandu. Annual ly deteriorated in the last 5 years. Carpet production h
remittances in 1992-1993 amounted to about accordingly become much less attractive as a goal of
1500-7500 NRs per worker and have declined to about
labor migration, as illustrated in Jhapa District (n = 80
500-5000 NRs since 1995-1996. At the same time, the where labor migration to Kathmandu Valley carpet m
percentage of workers remitting has also declined. ufactories increased steadily from 1984, when the first
Thus, carpet production has become a nonremitting or boy was recruited. Within the next few years, many ot
small-scale remitting industry in the national economy, ers were also recruited or followed friends and elder
especially when compared with international labor brothers or sisters. This migration peaked in 1991-19
migration (HMG/NPC/CBS 1997: 67; Seddon et al declined suddenly in 1993, and ceased completely in
1998). Workers' attempts to ameliorate wages and work- 1994. By then, the first migrants had left for the Gulf
ing conditions have been carried out through unions. states (Kuwait), which are becoming more and more
In August 1998, for instance, a list was handed over topopular for people from all over Nepal (Seddon et al
the Ministry of Industry, the Central Carpet Industry 1998). Access to labor markets in the Gulf states is
Association, and the Department of Labor. Among oth- almost exclusively controlled by manpower agencies
er things, it demanded a 50% wage increase, harmo- (vertical networks), with fees at about 40,000-80,000 NRs,
nization of wages in all manufactories, improvement ofwhich corresponds to 2-3 years of a carpet worker's
working conditions and health facilities, and kinder- salary. This destination for labor migration also has a
gartens and evening classes for basic schooling distinctive gender dimension, as the Nepalese govern-

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Research

259

ment prohibited recruitment of women to the Gulf riorating in urban labor markets; purchasing capacity
and hence remittances are declining, leading to a low-
states in 1998, following the rape of a migrant Sherpa
woman. Thus, women are forced to stay behind,level facing
remittance economy.
the choice between no employment or far less attractive Thus, by the late 1990s, many men previously
labor markets such as carpet production. employed in carpet weaving looked for work in other
Pressure on rural households to seek income regions of the world, mainly in the Gulf states. These
opportunities outside agriculture is increasing. Many foreign labor markets, however, also face serious com-
farmers who try to improve their livelihoods have little
petition from South Asian as well as other countries.
education and face enormous difficulties in finding Although men engaged in these labor markets receive
decently paid wage labor in the rural or urban labor comparatively high wages, newly recruited workers
market. Wherever it is based on export production, the
sometimes have to accept wages below official mini-
domestic labor market is highly sensitive to changesmum on rates. Besides, it is virtually impossible for exter-
the world market, as has been shown for carpet manu- nal bodies such as the Nepalese government or trade
unions to monitor conditions. At the same time, women
facturing. It also faces difficulties integrating growing
numbers of migrant workers, with supply again exceed- are excluded from this opportunity and are, once
ing demand. Although the Nepalese government and again, left behind in far less attractive local and region-
workers' unions may institute minimum wages, regula- al labor markets.
tions are not always implemented. Conditions are dete-

AUTHOR ACKNOWLEDGMENTS

Elvlra Graner The research project was funded by the DFG (German Research Council).
South Asia Institute, Heidelberg University, INF 330, 69120 Heidelberg, The author would like to thank Siddhi Tumbahanghe and Suresh and
Germany. Surendra Manandhar for their valuable contributions during data collection.
egraner@sai .uni-heidelberg .de Thanks also go to David Seddon (University of East Anglia, Norwich) for his
helpful comments on an earlier draft and to the anonymous reviewers.

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