Economist Reveals Factors Behind Continuing Layoff Trend This Year

Executive Director of the Center of Reform on Economics (CORE) Indonesia, Mohammad Faisal, has responded to the growing wave of threats of layoffs (PHK). According to him, the layoff trend has been occurring over the last few years. It is continuing this year because many factors are adding pressure to the business world. “In recent years and also this year, there has especially been an increase in inflation, particularly producer inflation because raw material prices have increased,” Faisal told Media Indonesia on Wednesday (24/6). In addition, there is the factor of the weakening rupiah exchange rate. Then there is disruption due to geopolitical factors, making logistics costs more expensive when procuring raw materials from abroad, including rising energy prices. “So this impacts industry, causing production costs to increase. For industry to survive, it must of course carry out efficiency measures under conditions of such cost increases,” he explained. “One of the easiest ways to achieve efficiency is usually by reducing the number of employees. Especially if production output also falls due to declining sales caused by various factors. Including global factors that drive inflation at the consumer level, thereby reducing purchasing power,” he clarified. Faisal added a number of other factors. For example, increasingly fierce competition in the domestic market due to competition with imported products, as well as in foreign markets due to competition with other exporting countries. “Moreover, there is an additional factor from increased trade barriers. Because protectionism is rising, triggered also by United States policy,” he stated. Meanwhile, for sectors vulnerable to mass layoffs, he said, they are those with the highest increase in production costs. These are usually industries that have a fairly high dependence on imports. “Besides the textile and textile product industry, which also has a high risk of layoffs, there is the ceramics industry, which has a very high dependence on energy, especially gas. The price of gas has increased tremendously from US$6 per MMBtu to, if I am not mistaken, US$23 now,” said Faisal. “Also, a number of other industries are affected, such as the petrochemical industry, where traffic disruptions in the Strait of Hormuz result in increased costs for gas and also raw materials for plastics,” he concluded.