Employment generation target needs correction<\/p>\n
Anton Doni
\nJakarta<\/p>\n
The new government has set some ambitious economic targets
\nthat may well be very hard to achieve: The creation of 600,000
\nnew jobs for every 1 percent of growth, and a growth target of
\n6.6 percent annually. That means for next year, with an expected
\ngrowth of 4.4 percent, about 2.6 million jobs would be created
\nwith more expected in following years, reducing the current level
\nof unemployment while at the same time keeping pace with growth
\nin the labor force.<\/p>\n
Unemployment is a mammoth problem affecting 9.5 million
\nIndonesians, or 9.5 percent of the entire labor force. The
\nunemployment rate is the peak of a consistent trend since the
\n1997 economic crisis, rising from 4.7 percent in 1997 to 5.5
\npercent in 1998. In 1999 it increased to 6.4 percent, then 6.1
\npercent in 2000, 8.1 percent in 2001, 9.1 percent in 2002, then
\n9.5 percent in 2003.<\/p>\n
But is the government's target realistic? One of the ways to
\nexamine its reasonability is by looking at the history of
\nemployment generation in previous years.<\/p>\n
Although the targeted number at a glance looks unrealistic for
\ntoday's situation, there is evidence that supports the
\npossibility that the targets could be reached, although its
\nprobability is not especially high.<\/p>\n
There have been two years of economic growth where employment
\ngeneration per 1 percent of GDP growth (employment elasticity)
\nhas exceeded 1 million jobs, namely 1986 and 1999. A thorough
\nstudy of the factors that produce such high levels of employment
\nelasticity can help the government to know whether it can reach
\nits targets, or whether it needs to lower its sights.<\/p>\n
Aside from economic growth in 1986 and 1999, there are no
\nother years where employment elasticity gave such an impressive
\nperformance. Apart from the years just mentioned, the highest
\nelasticity is in 1987 when 418.713 new jobs per 1 percent GDP
\ngrowth were generated. Others years show levels below 400.000,
\namong them 1988, 1990, 1992, and 1994, with employment elasticity
\nabove 300.000. The rest are much lower. (See table).<\/p>\n
The simplest conclusion, then, is this: Although the
\npossibility of realizing the government's plan to create 600,000
\nnew jobs per 1 percent GDP growth cannot be ruled out, it must be
\nkept in mind that there are limited historical references support
\nsuch significant employment growth.<\/p>\n
High job growth in 1999 is not a particularly good example.
\nAlthough at that time employment growth was quite high, it was
\ncaused more by the re-opening of factories and other
\nmanufacturing businesses that were forced to stop operations as a
\nconsequence of the economic crisis of 1997.<\/p>\n
With such limited references, and taking into account the fact
\nthat even in the times of a rapidly growing economy employment
\nelasticity is only moderate, it can be concluded that the
\ngovernment should lower its ambitious employment generation
\ntargets.<\/p>\n
The relationship between GDP growth and employment generation
\nis not fixed. One percent of GDP growth may well produce very
\nhigh levels of employment -- up to 1,000,000 jobs -- in one year,
\nbut other years it can have a very minor impact, as low as
\n86,757.<\/p>\n
Learning from statistics, the most realistic choice may be to
\nprioritize GDP growth with a more moderate expectation of
\nemployment elasticity. An expectation of 300,000 to 400,000 jobs
\nper one percent of economic growth is much more realistic, as
\nhappened in 1994, 1992, 1990, 1988, and 1987.<\/p>\n
It seems that good performance in terms of both employment
\nelasticity and employment growth in those years was caused by
\nexpansion in the manufacturing sector, in helped by the trading
\nand construction sectors.<\/p>\n
A good combination occurred in 1994 when manufacturing sector
\noutput growth of 12 percent contributed an additional two million
\njobs, the trading sector about 1.5 million jobs from a growth
\nrate of 7.6 percent, construction about 750,000 jobs from a
\ngrowth rate of 14.9 percent, and transportation 445,365 jobs from
\na growth rate of 8.3 percent.<\/p>\n
It also occurred when agriculture contributed negatively to
\nemployment generation. Using the term now promoted by ILO,
\nproductive employment, the years thus marked a good achievement
\nin the promotion of productive employment.<\/p>\n
Learning from these years it can be seen that it is important
\nto push growth in manufacturing. The loss of competitive
\nadvantage factors such as low labor costs, and the degradation of
\nbusiness environment, which currently limits the growth of those
\nsectors, means the government must work very hard to overcome
\nnegative factors.<\/p>\n
Meanwhile the export of migrant workers is also crucial.
\nHowever the government has a lot of work to do in improving the
\nchaotic management of our migrant workers.<\/p>\n
Despite all efforts, the government's target to create
\n600,0000 jobs per one percent of economic growth will be unlikely
\nto be achieved. The government must be more realistic.<\/p>\n
Table. GDP Growth, Employment Growth, and Employment Elasticity
\nof Selected Years
\nYearGDP Growth (%)Employment Growth (%)Employment ElasticityUnemployment Rate (%)
\n19865.99.41,000,1782.6
\n19874.93.0418,7132.5
\n19885.83.0366,0302.8
\n19897.51.3121,5542.8
\n19907.13.3339,7312.5
\n19916.60.886,7572.6
\n19926.72.7313,1832.7
\n19937.20.994,3532.8
\n19947.53.6376,3354.4
\n19958.2n.a.n.a.7.2
\n19968.0n.a. n.a.4.9
\n19974.71.6286,7964.7
\n1998-13.32.7-172,652.5.5
\n19990.81.31,346,3656.4
\n20004.91.1204,7086.1
\n20013.51.1285,0428.1
\n20023.70.9227,5749.1
\n20034.1-0.9-210,3059.5<\/p>\n
*) Employment elasticity is defined as the amount of additional employment generated from 1 percent of GDP growth.<\/p>\n
The writer is head of The Jakarta Post's Research and Development Unit.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/employment-generation-target-needs-correction-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }