Bhutan lies between China and India, which have a combined population that is two thousand times greater. In fact, the country’s population density rate of 17.9 per square kilometre is the lowest in South Asia (UNSD no date) and with a land size of 38,394 km², Bhutan has a relatively favourable land to people ratio despite its predominantly mountainous terrain.
Per-capita income in Bhutan stood at $2,088 in 2010, a relatively high figure compared to most of its neighbouring countries, and in the global Human Development Index for 2009, it ranked 132 out of 182 in the category of countries listed under ‘medium human development’. The country’s progressive policies towards education, specifically with regard to the rollout of comprehensive education systems, resulted in a primary school enrolment rate of 84 per cent and primary school completion rate of 87 per cent in 2007. Enrolment at the higher and secondary level was reported to be about 25 cent for the same period (UNDP 2009).
The Bhutan economy is in a transitional phase. The country is experiencing significant growth in the hydropower and construction sectors and as a result, its dependence on agriculture is decreasing at the expense of increased reliance on the manufacturing and service sectors. The construction industry has for some time been one of the growth engines of the economy. However, despite efforts to train a large number of construction technicians, shortages of workers in this category persist. The wages paid to these types of workers are not sufficient enough to compensate for often having to work in remote locations and the negative image attached to this occupation. Similarly, blue-collar jobs hold a low status, and though training facilities have been created or expanded to support the building industry and sheet metal works, not enough people take advantage of them (Ernst and Young 2009).
The need for labour in the construction sector is increasing under the country’s Tenth Five Year Plan (2008–2013), which includes projects to build hydropower plants, develop infrastructure and construct roads (Bhutan 2010).
In a recent survey, private sector firms reported difficulties in recruiting low-skilled labour as well as highly skilled experts among the Bhutanese labour force. In addition, 13 per cent of the Bhutanese firms interviewed identified labour skills as a major constraint. Average labour costs in Bhutan are almost 45 per cent higher than those in India (World Bank 2010). The twin pull factors of an internal labour shortage and high wages are especially strong in the construction sector, which is the main employer of foreign workers.
Skill mismatch is an increasingly important issue in Bhutan. Even though some sectors need to employ foreign workers due to labour shortages, unemployment in Bhutan has been on the rise. The Bhutan Labour Force Survey 2009 reported an unemployment rate of 4 per cent in 2009 (2.6 per cent for men and 5.6 per cent for women), up from 2.4 per cent in 2004. It indicated that unemployment rose sharply in urban areas from 2.0 per cent in 2004 to 7.5 per cent in 2009. Labour force data over the years also indicate that the number of unemployed youth is disproportionately high. Youth unemployment has increased rapidly from 2.2 per cent in 1998 to 9.9 per cent in 2007 and 13 per cent in 2008 (Ernst and Young 2009, Dorjing 2010).
The 2005 Bhutan census reported that 43 per cent of the people employed were working in the agriculture sector as compared to 75 per cent in 1999. The industrial sector in 2005 accounted for 17 per cent of the labour force, tripling from less than 5 per cent in 1999. Similarly, those employed in the service sector more than doubled from about 16 per cent to about 39 per cent during that period. This can be attributed to steps taken to modernize the economy and make it less dependent on subsistence agriculture as well as to the implementation of progressive education policies. These activities have consequently resulted in rural-urban migration trends and accompanying population movements. Nevertheless, the population of Bhutan is still predominantly rural but the pace of urbanization has been accelerating. In 2005, some 30.9 per cent of the population lived in urban areas, up from 15 per cent in 1994 (Bhutan Office of Census Commissioner 2005).