NRB updates salary and wage index base year to 2023/24

KATHMANDU: Nepal Rastra Bank (NRB) has updated the base year of the salary and wage index to 2023/24, replacing the previous base year of 2004/05. This change aims to update the weights used in constructing the index to reflect structural changes in the economy and employment forms.

The revised weights are based on the results of the 2017/18 Nepal Labour Force Survey conducted by the National Statistics Office (NSO), using the Nepal Standard Industrial Classification (NSIC) and Nepal Standard Classification of Occupations (NSCO).

As salaries and wages do not change significantly in the short term, the index, previously calculated monthly, will now be calculated every three months.

The index construction employs the Modified Laspeyres (Young's Laspeyres Index) method. This method involves collecting salary and wage data from a selected sample every three months, following the matched sample principle, and constructing a lower-level index for each occupational category. The first stage derives the unweighted geometric average for similar occupations at the elementary level. In the second stage, the index is weighted, and provincial, industrial, occupational, and national indices are constructed. The method also allows for the inclusion of new occupations and the replacement of obsolete ones.

The new base year index is available in three formats: industrial classification, occupational classification, and provincial classification.

The index for the first three months of the fiscal year 2024/25 includes a back-linked series in the September/October table of the current economic and financial situation. However, due to a smaller sample size at the lower levels of classification, the confidence level of the back-linked series is low, and users are advised to interpret it accordingly.

The new index was constructed using data from 5,296 job types across 1,025 institutions, covering all industries and occupations in 30 districts of all provinces.

Previously, data was collected from 11 market centres under nine groups, including six types of institutions (civil service, public institutions, banks and financial institutions, army and police, educational institutions, and private institutions) for salaries and three types of industrial groups (agriculture, manufacturing, and construction sectors) for wage rates.

The NRB states that the new base year index will be more user-friendly and facilitate international comparisons. It is expected to be more comprehensive, reliable, and helpful in decision-making regarding income and production costs.