The conundrum of labour shortage in a labour surplus economy: an investigation of Nepal

Nepal continues to be an agrarian economy with agriculture providing primary employment to 64% of the workforce and contributing 21.3% in the value-added according to the most recent figures available (World Bank, 2020a, 2020b). The pressure on agricultural land is also more than that in its neighbouring countries China and India, which are still regarded as surplus labour economies. While this cursory picture indicates that Nepal is also a labour surplus agrarian economy in the Lewisian sense (Lewis, 1954), recent literature has consistently referred to labour shortage in agriculture (e.g. Maharjan et al., 2013b; Pant, 2013; Sunam & Adhikari, 2016; Tuladhar et al., 2014 to mention few) and indicated the exhaustion of surplus labour (Pant, 2013; Tuladhar et al., 2014)-an apparent conundrum that warrants further analysis. The paper starts by statistically confirming the presence of surplus labour in Nepal based on the most recent household survey available for the country (Nepal Living Standards Survey 2010/11) despite recent reports of labour shortage in the sector. In the next part, the paper investigates the role of migration in explaining labour shortage following relevant literature on Nepal and other countries (Rozelle et al., 1999; Tuladhar et al., 2014). Towards this end, Propensity Score Matching estimation is carried out. The results indicate that though migration led to reduction in agricultural output, this reduction cannot be interpreted as labour shortage, thereby rejecting the hypothesis that migration can systematically explain the recent labour shortage in Nepal.