Labour Market Friction to Understand the Labour Shortage in the Surplus Labour Economy
From the macroeconomic perspective, Nepal is a surplus labour economy, with 64% of the workforce in agriculture. It has significantly more pressure on its agricultural land than its neighbouring countries, China and India, which are regarded as surplus labour economies. The average operational farm size is 1.08 hectares in India and 0.90 hectares in China; the corresponding figure for Nepal is 0.68 hectares (CBS, 2013; Gulati & Juneja, 2021; Huang, 2021). Rural agriculture has more than 85% of surplus labour in agriculture (Adhikari, 2022). However, literature has noted labour shortage in the agriculture of Nepal, which is supposed to be the largest pool of surplus labour (Maharjan et al., 2013a, 2013b; Pant, 2013; Tuladhar et al., 2014). Such a view of labour shortage has been reflected in major agriculture policies of Nepal, i.e. Agriculture Development Strategies 2015-2035, that have aimed for agricultural mechanization to deal with the labour shortage. Such policies have been motivated by the view that Nepal’s agriculture has the general phenomenon of labour shortage irrespective of the spatiotemporal nature of the rural labour market. On the other hand, literature highlighting the labour shortage in agriculture has not been engaged in discussing the surplus labour nature of the economy. Moreover, the claim of a labour shortage is based on small-area studies, mainly in the hills of Nepal, where farmers complain about labour shortages.
Hence, the issue of labour shortage in agriculture still needs to be clarified in rural Nepal. We use Household Risk and Vulnerability Survey panel data to understand the labour shortage issue in Nepal’s rural agriculture. We shed some light on the subject by working in the rural labour market. We noted that there is friction in the rural labour market. In line with Adhikari (2022), we showed surplus labour in the rural labour market in Nepal. When we take care of the heterogeneity of seasons and regions, we note that there exists a labour shortage-surplus spatiotemporally. The main reason for such labour shortage is the segregated rural labour market. We also noted that in the community where labour comes to work through the inter-community labour movement, the issue of the labour shortage is mitigated.
The result is significant in the context of Nepal. First, there is a lack of literature that demonstrate Spatio-temporal labour shortage-surplus nexus. Second, this paper showed the importance of the inter-community labour movement and the need to work to integrate the rural labour market to deal with a labour shortage in the surplus labour economy. Third, as Dhar (2021), this paper cautions the blanket mechanization in agriculture to replace labour to deal with a labour shortage as an inter-community labour movement seems a better alternative.
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 For detailed discussion see Adhikari (2022)