Rising income inequality among Nepalis should be an issue of grave concern for policy analysts and decision-makers as ‘the richest 10 percent of Nepalis make three times more income than that of the poorest 40 percent’ (Oxfam International and HAMI, 2019). Among many driving factors, income inequality could be attributed to labor market discrimination as the wage remain low for the average workers moderated by social characteristics such as caste and ethnicity.

In this paper, I analyze the labour market discrimination in Nepal by utilizing the data from the Nepal Labour Force Survey 2017/18. Developing a framework of labour market discrimination based on global literature on employers’ taste (Becker, 1957; Welch, 1967), differential labour productivity, (Arrow, 1971), unequal distribution of human capital (Mincer, 1974), labour market segregation  (Watchel and Betsey, 1972; Berger and Piore, 1982), and caste discrimination in labour market (Banerjee and Knight, 1985), I analyze earning function and occupational distribution differences among Nepal’s major caste and ethnic groups. I conduct a simple linear and multinomial regressions to see how much of wage and occupation differences can be attributed to human capital and productivity differences. Finally, I use Oaxaca (1973) and Blinder (1973) decomposition methods to disaggregate explained and discriminatory factors for wage and occupational differences.

The preliminary analysis shows existence and operation of discrimination at least in part with concentration of Dalits in low paying, informal and blue-collar jobs that are mostly associated with their traditional occupation. In comparison to the reference group Khas Arya, Madhesi and Janajati also have different earning function and are found to be in low paying and informal blue-collar jobs in high proportion. Noticeably, the different earning functions are also explained by concentration of higher proportion of Dalit, Madhesi and Janajati (in descending order) in daily wage-based and high hours required manual occupation serving the economic interest of those who continue to practice caste-based discrimination.


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