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WB suggests ways to boost private employment

While productivity of Bhutanese workers increased significantly between 2009 and 2015, Bhutanese firms are still facing shortage of workers with right skills and experience.

According to a joint study conducted by ministry of labour and the World Bank, close to 40 percent of small and medium-sized firms saw lack of skilled workers as a constraint compared with only about 23 percent of large firms.

Declining fertility and rising life expectancy could result in doubling the number of older persons nearing retirement age by 2030, according to the National Statistical Bureau (NSB).

The fact is Bhutan’s working age population is increasing just as the public sector’s absorption capacity is diminishing.

Going by the Bhutan Enterprise Survey (BES) of 2015, the main labour-related constraints for private sector employment growth are lack of workers with relevant experience and skills, restrictions on employing non-Bhutanese workers, and lack of interest among Bhutanese workers in private sector employment opportunities.

This is indicative of low quality jobs offered by the private sector.

As of June 30, 2015, Bhutan had a total of 44,744 foreign workers, including hydropower workers. The enterprise survey also indicated that 30 percent of non-farm private sector workers were not Bhutanese citizens.

The survey also found that almost 20 percent of non-farm private sector firms find restrictive immigration rules.

In the manufacturing sector, a quarter of the firms found restrictions on immigration rules.

A World Bank study called Practical Solutions to Addressing Labour-related Barriers to Bhutan’s Private Employment Growth states that reforms on regulations regarding foreign labour could ease constraints.

Foreign workers, according to the World Bank, are largely complementary to the Bhutanese workforce.

“Worker protection from minimum wage regulations currently apply only to Bhutanese workers, making foreign workers automatically much cheaper,” the report states. Paying lower wages to foreign workers benefits Bhutanese employers but could negatively affect the growth of minimum wages for Bhutanese workers, allowing survival of low productivity enterprises, and discourage employers from looking for less labour-intensive production alternatives, such as mechanisation.

The World Bank study suggests the country to use skill-specific occupational shortage to simplify the process of hiring foreign workers where necessary. It recommends the country to extend the minimum wage to foreign workers to prevent wage suppression and to ensure the technological upgrading and competitiveness of Bhutanese businesses employing foreign workers. It is also suggested that Bhutan capitalise on skill and technology transfer by hiring highly skilled foreign workers.

“Private sector jobs in Bhutan are rarely an aspiration,” the study points. Close to 50 percent aspired for public sector jobs and another 30 percent hoped for jobs in a state-owned enterprise according to a survey conducted in 2014. “This preference, however, seems driven more by differences in compensation packages for comparable jobs than by a wage differential,” World Bank stated.

However, another analysis found preference for public sector jobs may be attributed to differences in access to pensions and other fringe benefits such as overtime pay, paid leave, sick leave, casual leave, and maternity leave.

According to the Labour and Employment Act 2007, all employees are supposed to receive a pension or provident fund. Currently, however, the National Pension and Provident Fund (NPPF) covers only civil servants, government workers, employees of government owned enterprises, and the armed forces.

“A review of best practice social protection systems, in contexts similar to Bhutan’s, shows that the optimal policy for expanding pension coverage to private sector workers should provide incentives to participate for both employers and workers without discouraging formal employment,” the study stated.

Tax incentives that benefit both the employer and the employee are recommended. However, to do so without impacting the government coffer and sustainable management of pension fund, a reform in pension scheme has been recommended.

The study saw investment in education and vocational training institutes (VTI) as crucial.

A study conducted in 2014 found that VTI had failed to attract significant numbers of students due to inadequate financing and the inability to overcome potential students’ perceptions that vocational training provided a “second class education.”

Furthermore, a tracer study of TTI alumni conducted by education ministry found that the TTIs had not adequately equipped their graduates for private sector jobs and that unemployment among them was therefore relatively high. Non-farm private sector firms continued to perceive lack of adequate skills, including both soft skills and computer and other technical skills, as an obstacle to growth.

Thus, improving ICT-specific modules in both formal and vocational education, introducing soft skills modules into formal education and vocational training; and strengthening on-the-job training modules to ensure workers’ continued ability to adopt new technologies were deemed important.

The World Bank also suggested introducing performance-based contracts.

“Where the tax system functions well and is strongly enforced, tax breaks to firms can serve as incentives for providing on-the-job training programs for students in classroom technical training programs,” the study stated.

Employers cited lack of job-specific socio-emotional skills as a moderate obstacle to their operations. Importance of socio-emotional skills will continue to grow as mechanisation increases.

Forty percent of the non-farm private sector firms surveyed in 2015 reported insufficient problem solving, critical thinking, or leadership skills among the employees. This is because the study stated that level of on-the-job training in Bhutan is currently low.

It was also suggested that a consortium of SMEs could be formed to avail of resource person to facilitate on-the-job trainings.

Tshering Dorji

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