Economic woes takes its toll on employment

Economic woes takes its toll on employment

The combination of the monetary crisis and the bank
liquidations has paralyzed many companies, thereby causing
unemployment to rise. Bomer Pasaribu, deputy chairman of the
Federation of the All Indonesia Trade Union and chairman of the
Association of Trade, Banking and Insurance Workers discusses the
issue.

Question: Many companies are having difficulties with working
capital, cash flow and marketing. Some of them have been forced
to cave in and dismiss their workers. How do you see the
unemployment problem?

Answer: The number of employees losing jobs from the liquidated
banks is relatively small, just tens of thousands. But the impact
of the monetary crisis -- from stagflation (stagnant economic
growth combined by high inflation), the decrease in purchasing
power and the decline in production activities -- will force the
dismissal of approximately 1.1 million workers in the formal
business sector.

Q: Millions are entering the labor market every year. How many of
them can get employment in the present situation?

A: If the economy grew at a normal level of about seven percent
per year, around 2.4 million out of the three million people
entering the labor market would find jobs. But because the
economic growth is estimated to decline from 7.8 percent in 1996
to five percent in 1997 and to three percent in 1998, the labor
market will probably only be able to newly employ about 1.4
million to 1.5 million of them each year.

Q: How severe will unemployment be, due to worker dismissals and
the decline in employment opportunities?

A: The unemployment rate is likely to grow from 7.7 percent
(nearly 6.5 million) of the 90-million-strong labor market in
1996 to around 10 percent in 1997 and to between 11 and 13
percent in 1998.

Q: What measures should the government and the private sector
take to help reduce the impact of the economic crisis on
unemployment?

A: Now is the right time for the government to take real action
by simplifying bureaucracy and slashing levies. Arduous
bureaucracy and illegal levies have caused invisible costs to
reach about 14 percent to 19 percent of total production costs --
or twice the country's average labor costs of only seven percent
to nine percent. The government should also loosen its tight
money policy for labor-intensive and export-oriented sectors.

Companies can help reduce the impact of the economic crisis on
employment by reducing the number of their operational hours, for
example, from 42 to 30 hours a week, instead of dismissing
workers.

Q: The government has often organized meetings with several
parties with an aim to reduce both legal and illegal levies. What
were the results of these meetings?

A: The meetings were quite good. But the levies are still there
and the invisible costs are even higher since then.

Q: Why are government officials not implementing the results of
the meetings?

A: Ask the government! But the government should try to improve
its economic vision. If we take a comparison with other
countries, labor costs in Malaysia are about 29 percent of total
spending for production and in Thailand about 19 percent, but
their products can compete in the international market because
invisible costs are very low in those countries.

Labor costs in Malaysia's electronic industry are eight times
more expensive than Indonesia's but Malaysia's earnings from
electronics exports are 10 times that of Indonesia's.

Q: Do you think that the number of labor strikes will increase
due to the economic crisis?

A: The number of strikes, which rose from 365 in 1995 to 901 in
1996, will surely increase further this year. But companies can
help restrain the increase by adjusting wages to inflation, which
is likely to increase from 6.6 percent in 1996 to around 10
percent in 1997 and to 11 percent to 12 percent in 1998.

Q: Do you think that the government's IMF-sponsored reform
package will be helpful to employment in Indonesia?

A: IMF's policies are always oriented to improve efficiency and
economic growth. But IMF officials, in formulating reform
measures for Indonesia, have never considered efforts to help
improve employment opportunities and never thought whether the
measures would cause unemployment.

The government, therefore, should combine the IMF-sponsored
reform package with other measures aimed at increasing employment
opportunities and promoting equity in earnings.