With the historic promulgation of its new constitution in September 2015, Nepal is now better positioned to accelerate economic growth that is necessary for sustainable peace and development. However, poor industrial relations and labour market rigidities are key constraints to both foreign and domestic investment that is needed to drive growth, and such investment requires an appropriate enabling environment.

A well-managed labour market is a necessary part of this. In the current system of labour market governance in Nepal, there is a mismatch with the needs of a growing private sector. Nepal cannot afford to ignore the urgency of strengthening its labour market governance as it is a necessary condition for establishing a conducive business environment needed for creating new jobs and reducing poverty. To meet the growing challenges of globalisation and economic liberalisation, by virtue of which labour, technology and capital have become so mobile, the traditional model of labour management relations must be changed.

The labour market governance refers to the totality of institutions—including policies, norms, laws, regulations, structure, mechanism and processes—that influence the demand and supply of labour. Its primary objective is to establish a well-functioning labour market which in turn fosters business confidence and supports investment.

Policies, laws and regulations are a fundamental part of the governance, which will be more effective when they are in compliance with international labour standards and take into account the needs of both enterprises and workers. Generally, it is essential to balance the needs of business for labour market flexibility, specifically the need to expand or downsize enterprises based on market demand with workers’ needs for job stability and social security.

New acts

In Nepal, the government is on the brink of resolving this long-standing dilemma with a new Labour Act and a Social Security Fund Act. These laws are now tabled in Parliament and reflect a decade-long negotiation between trade unions and employers on the need for a flexible labour market. The new Labour Act will provide a flexibility of its own for an enterprise either to expand or contract its operation without having to require for governmental approval, while the Social Security Fund Act calls for a contributory unemployment scheme which will provide financial support for those who lose their jobs due to staff cutbacks. This is a step in the right direction, but other legal reforms are also required in relation to formation of trade unions, safe migration for employment and elimination of child and bonded labour.

An independent and efficient judiciary is also a key aspect of governance. A range of judicial and semi-judicial institutions are needed to ensure that labour laws are effectively implemented. Among these are industrial relations commission, which regulate and adjudicate labour issues between workers and employers, equal opportunity commission which respond to discrimination cases, and labour courts that respond to labour disputes. These institutions must be technically competent, independent of political changes and sufficiently empowered. Effective labour inspection is also required. Nepal should enhance its investment sufficiently in labour inspection to ensure that workplaces comply with labour law with decent and safe working conditions.  

There are strategies for carrying out labour inspection in a cost-effective way. Sri Lanka, for example, is already moving into an on-line technology. In 2013, it became the first country in South Asia to use the innovative Labour Inspection System Application (LISA), developed by the ILO, which brings together all the elements of labour inspection into one system. It has transformed conventional methods of labour inspection. The LISA could be a boon for Nepal as well. With a total of nine Labour Offices for the entire country, the labour administration in Nepal has not been able to provide effective and efficient services due to inadequate human and financial resources, among others. Nepal needs to develop labour inspection as a specialised service within its bureaucracy by delegating high level of authority and accountability. A culture of compliance and rule of law must prevail.

Proactive mechanisms

Productive dialogue between employers, workers and government is a crucial part of the labour market governance. The key actors—employers, workers and government—play vital role in shaping the nature of labour relations. Nepal has come a long way in terms of developing technically competent and well represented social dialogue institutions like the tripartite Central Labour Advisory Committee, Minimum Wage Fixation Committee, independent and representative employers’ and workers’ organisations. Nevertheless, it needs to establish more proactive and functional bipartite as well as tripartite mechanisms which can prevent or mitigate potential disputes by addressing the issues in a timely way. Collective bargaining agreements (CBAs) need to be effectively implemented and the parties to the CBAs must be involved in the negotiation with due respect to the principles of good-faith bargaining. Likewise, unwarranted use of right to strike or lockout must be avoided because this diminishes credibility of the parties to a dispute and forfeits potential opportunities for successful negotiation.

All the elements of the labour market governance are equally important as they reinforce each other. In Nepal, the size of the labour force continues to grow more rapidly than the available demand for workers; this has huge social and economic impact on society. In such a situation, the core institutions of the labour market governance must be proactive to protect the workers from unfair labour practices while at the same time protecting the interests of the business community in order to produce and sustain more jobs.

Howard is Country Director and Rajbanshi is Senior Programme Officer at the International Labour Organisation (ILO) in Nepal