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.