Cracking the conundrum of Indonesian unemployment<\/p>\n
Roland Lindenthal, Jakarta<\/p>\n
More than 10 percent of Indonesia's labor force are
\nunemployed, a rate that is too high. What makes matters worse is
\nthat it has been increasing over time, and that it reflects only
\npart of the problem. Underemployment is another serious concern,
\naffecting a much larger part of the population and causing a high
\npercentage of the workforce to be poor. Working conditions are a
\nthird major concern.<\/p>\n
These problems are aggravated by some unfortunate, partly more
\nrecent developments: The urban labor force is growing at some 5
\npercent per annum. The informal sector is expanding and creating
\nmainly low quality jobs, while employment in the formal sector is
\ndeclining. Especially low-skilled workers in the formal sector
\nare loosing their work, and youth employment has become an ever-
\nincreasing problem.<\/p>\n
Raises in formal sector wages are outpacing productivity,
\nwhich in turn has recently been declining. Disparities between
\nwages in the formal and informal sectors have been mounting, and
\nregional employment disparities are high and partly rising.<\/p>\n
This illustrates that the overall labor market situation is
\nrather difficult and complex. There are no simple solutions.
\nGrowth alone will probably be unable to do the trick.<\/p>\n
Because of the danger of \"jobless growth\", economic growth as
\nsuch is not sufficient. And even if growth would quickly feature
\na much higher level of employment elasticity, it would not
\nnecessarily solve qualitative problems. What is needed is a
\ncomprehensive policy and strategy to increase the number of
\nadequate full-time workplaces, based on the best possible
\noptions. How could such an employment and labor market policy be
\ndesigned?<\/p>\n
Firstly, sound employment policies including employment-
\noriented macro-economic policies, sectoral policies and policies
\nfor the promotion of particular types of enterprises will be
\ncrucial for investment and economic growth, presumably the main
\npillar of any strategy to sustainably improve the labor market.<\/p>\n
Cornerstones of such policies would include proper employment
\ntarget setting, coherence of macro-economic policies, structural
\npolicies and sectoral policies with the Government's overall
\npolicy framework, strong links to poverty alleviation strategies
\nand consensus building through regular dialogue between the
\nGovernment and the social partners.<\/p>\n
Secondly, Indonesia's regulatory framework needs to be
\noptimized, the right level of labor market flexibility needs to
\nbe found, including a sound mechanism for setting minimum wages.<\/p>\n
Thirdly, employment rates and working conditions can be
\nimproved through active labor market policies: Strengthen
\nindustrial relations, improve the education and skills level,
\nensure the availability of reliable, regularly updated
\nstatistics, develop a comprehensive labor market information
\nsystem, and promote strategic partnerships with the private
\nbusiness sector.<\/p>\n
Further options are to directly create employment by using
\nlabor-based approaches for the implementation of infrastructure
\nprojects, reprioritizing government spending in favor of (in any
\ncase much needed) infrastructure, and reviving job creation
\nprograms.<\/p>\n
In addition, the government could design and implement
\ncomplementary programs targeted at the youth, women and migrant
\nworkers. These active labor market policies might be supported by
\npassive ones. Considering the potential benefits, it would be
\nworth exploring the feasibility of an unemployment benefit scheme
\nand wage subsidies.<\/p>\n
Which of these labor market instruments would be the most
\ncost-effective remains to be assessed in greater detail. In any
\nevent, active and passive labor market policies are not
\nsubstitutes for labor-friendly policies and a sound regulatory
\nframework, but rather complementary. Well-designed programs will
\nimprove the employability of job seekers and increase the number
\nof job opportunities available.<\/p>\n
In return to those public investments, the private sector
\nwould respond as the domestic market expands due to increased
\nexpenditure, as production costs become more competitive due to
\nimproved infrastructure, and as productivity increases due to a
\nbetter qualified workforce.<\/p>\n
To minimize the risk that public investment for labor market
\npolicies becomes a vehicle for corruption and an instrument for
\nvote buying politics, it would be indispensable to build strong
\ninstitutions that can act as a check on such behavior.<\/p>\n
Indonesia's employment problems need to be approached
\nactively; to wait for growth to take care of things is not an
\noption. The magnitude and complexity of labor market problems
\nrequire all possibilities to be utilized and policy-makers to
\nplace the fulfillment of the citizens' right to adequate work at
\nthe heart of economic and social policies.<\/p>\n
Against this background, the new government has taken a step
\ninto the right direction with its Medium Term Development Plan
\n2005-09. It strongly emphasizes the importance of the quality of
\neconomic growth, and recognizes that growth is not sufficient on
\nits own. That is why direct interventions are necessary to
\nmaximize people's welfare.<\/p>\n
The Plan uses a wide approach to employment, one that goes
\nbeyond open unemployment and includes underemployment and
\nqualitative aspects, a crucial step to capture the employment
\nsituation realistically and respond with the right instruments.
\nIt acknowledges the role of quality economic growth as the main
\nengine of employment growth and improvement.<\/p>\n
Public spending shall be increased for social purposes and
\ninfrastructure and, in general, be re-prioritized towards
\ndevelopment. Labor market flexibility shall be improved,
\nparticularly through amendments to the current regulations on
\nseverance pay and dismissals, fixed-term contracts, outsourcing
\nand minimum wages.<\/p>\n
Supplementary interventions are expected to increase the
\nquality of growth and ensure that poor people, too, do benefit.
\nThe instruments proposed include the promotion of an effective
\ntrade union system and sound collective bargaining mechanisms,
\nwell targeted public works programs linked to infrastructure
\ndevelopment, better coordination of employment information for
\njob seekers, and improvements in the qualification of the labor
\nforce.<\/p>\n
The government's new approach to the divisive subject of
\nemployment gives good reason for optimism. It goes beyond the
\nbelief that economic growth alone can solve the problems. It
\nneeds to include a multitude of active measures to make growth
\nmore employment-intensive, and outlines a number of regulatory
\nand active labor market policies to improve people's welfare.<\/p>\n
If followed by a more detailed explicit employment and labor
\nmarket policy that reconciles diverse interests and is
\nimplemented in a serious, accountable and effective way, not only
\nthe ambitious goal of halving open unemployment by 2009 may be
\nattained, but also a marked reduction in underemployment and an
\nimprovement in working conditions, for the benefit of all
\nIndonesian citizens' well-being.<\/p>\n
The writer is Social Development Adviser of United Nations
\nSupport Facility for Indonesian Recovery (UNSFIR) (UNSFIR is a
\njoint project of the Government of Indonesia and UNDP).<\/p>\n
The views expressed in this article are totally that of the
\nauthor's and does not in any way reflects that of the
\ninstitutions.<\/p>",
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