On unemployment: Squaring the circle<\/p>\n
Satish Mishra, Head, United Nations Support Facility for
\nIndonesian Recovery (UNSFIR), satish.mishra@undp.org, Jakarta<\/p>\n
Psychologists have a favorite game. This consists of asking
\ntheir clients to react to pictures and symbols with the first
\nword which comes to their mind. The answers are expected to
\nreveal deeply hidden fears. Bringing our innermost feelings out
\ninto the open this way helps us to come to terms with ourselves.
\nIn the process, we look things in the eye. We are no longer
\ntrapped in denial. Reality stares us in the face.<\/p>\n
Strange as it might seem, the Indonesian condition bears a
\ncurious parallel to such a word game. Think about krismon
\n(monetary crisis). What are the first words that come to your
\nmind? The rupiah, stock prices, debt, KKN, crime, IBRA, IMF, the
\nbudget, inflation rate, fuel subsidy, foreign investors,
\nSingapore, Tommy Suharto, regional autonomy, the poorest of the
\npoor. There are no right or wrong answers in this game; just a
\nrevelation of concerns, prejudices and preferences. Surprising
\nnevertheless that jobs and wages are rarely on the first-reaction
\nscorecard.<\/p>\n
Four presidents and five and half years into krismon, people
\nare trying to make sense of it all. 2004 looms. There will be
\ndirect elections. What are the issues closest to the public mind?
\nWhat is their vision of the good life? You might get different
\nanswers from different people. But one thing is certain. A steady
\njob is sure to be on almost everyone's list.<\/p>\n
That employment merits so little attention amidst a mountain
\nof papers on the Indonesian economy since 1997, is not altogether
\na surprise. First, there is the problem of definition. When is a
\nperson really employed? We could think in terms of the numbers of
\nhours worked per week. Forty is a good number. But so is 30 or
\n50.<\/p>\n
What about the gifted artist who might paint one picture in
\ntwo months and makes enough to live on for several years? Is she
\nemployed for two months or two years? What about those who stay
\nat home, work 10 hours everyday and receive no cash? What about
\nagricultural laborers and construction workers, who work in a
\nfrenzy of seasonal activity? What about those who are just lazy
\nand live on family support or grandma's inheritance?<\/p>\n
Second, there are pitfalls of measurement. Not everyone is in
\nformal employment. They do not clock in and out. Their working
\nhours and wages are not recorded by their employers. They might
\nwork 60 hours one week and just 10 the next. They might be
\nmigrant workers who move from one job to the next. They may not
\nremember how many days they worked and where.<\/p>\n
What about those who work in family concerns. How would they
\ndistinguish between the hours worked by one family member from
\nthat by another? They would find it even harder to differentiate
\nbetween the incomes of several members of the same family. Such
\ncollective work and pay poses both a conceptual and a measurement
\nproblem. Labeling it as \"informal sector\" work does not bring
\nmuch analytical light to the question.<\/p>\n
Measurement problems do not just end with tracking jobs in the
\ninformal sector. Not everyone in formal employment is a truthful
\nrespondent to workforce questionnaires. Take the case of your
\naverage civil servant or teacher or electrician or plumber.
\nSalaries are low. Moonlighting is commonplace. There is little
\nincentive to tell the truth. There is equally little incentive to
\nreport it. The result is poor classification of both jobs
\nundertaken and hours worked.<\/p>\n
There is a third and much more complex problem -- one which
\nconcerns policy makers. They are little enamored with labor force
\nstatistics. But they are into the business of thinking about how
\nto create new jobs. They promise to purge the curse of
\nunemployment. The promise is repeated with great urgency during
\nrun up to the elections. The trouble is no one really knows how
\nto do that or what it would cost.<\/p>\n
In the old days, the solution lay in the building of bridges
\nand highways and electricity pylons. The government could run a
\nhefty deficit. In times of recession it could even print money.
\nUnemployment signaled unused capacity. By pumping money in the
\nhands of the consumer it could generate a virtuous cycle of
\ninvestment and growth. Even Henry Ford, no champion of the
\nworking classes, saw that if you raised workers' wages you might
\nsell more cars. They would certainly be happier. They might even
\nbe more productive.<\/p>\n
Such \"populism\" is a thing of the past. Today's governments,
\nunder scrutiny from international financial institutions and
\nglobal currency markets have limited room for maneuver. That is
\nrather ironical for those countries emerging from
\nauthoritarianism to democracy.<\/p>\n
They must establish rule by the people. But they must avoid
\nany hint of populism. The state must live within its means. It
\nmust not be in the business of providing jobs directly.<\/p>\n
So what lies next? The answer, as in the psychologist word
\ngame is instinctive. Go for growth. The arithmetic is blindingly
\nsimple. Count the number of new entrants into the job market in
\nany one year.<\/p>\n
Estimate the investment required to absorb this potential
\nincrease in the labor force. Relate investment to growth using
\nthe equivalent of the economists' version of the theory of
\nrelativity. The relevant words are: Capital output ratio.<\/p>\n
That will give you just what you want. It will tell you the
\nrate of growth of growth domestic product needed to absorb all
\nthe new entrants into the job market. And there you have it.
\nIndonesia's GDP needs to grow by around 5 percent to 6 percent
\neach year to keep pace with some 2 million job seekers each year.<\/p>\n
That looks good. We have a number. There is a policy target.
\nBut the skeptic is hard to convince. Granted that investment
\ngenerates growth and growth brings jobs, what determines
\ninvestment? Public investment might be driven by votes. What
\nabout private investment? What drives the captains of industry,
\ndirectors of banks and managers of trading empires? The favorite
\nanswer, popular since the mid 1930s, is \"sentiment\". The
\nuncharitable Keynes called it \"animal spirits\". These days it is
\ncalled investor confidence.<\/p>\n
That brings us full circle. In the end, jobs are created by
\ninvestor confidence. This is threatened by direct creation of
\njobs by the state. That would be populism. So how does a
\ngovernment keep its promise of creating new jobs? It keeps
\ninvestors happy while keeping out of the job creation business.<\/p>\n
As in all suspense stories, there is sudden shift in the plot.
\nNot all economic downturns are alike. The factors which promote
\ninvestor confidence in one context might undermine it in another.
\nIndonesia is a good case in point.<\/p>\n
In times of systemic transition, investor confidence might
\nwell be influenced by \"public\" confidence. What is more, a little
\ndose of populism might not be a bad thing.<\/p>\n
The opinions expressed in this article are strictly personal.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/on-unemployment-squaring-the-circle-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }