Four years on, employment crisis remains, experts say

Four years on, employment crisis remains, experts say

The following three articles on the employment crisis and
labor unions were written by The Jakarta Post journalist Santi
W.E. Soekanto, as workers prepare to celebrate International
Labor Day on May 1.

JAKARTA (JP): Does Indonesia need any more doomsayers when
every day newspaper headlines scream about the country being on
the brink of bankruptcy? Maybe not. May be people who offer words
of encouragement, who say that Indonesia has done some things
right despite having allowed its debt to swell to more than 100
percent of its GDP so that creditors have threatened to declare
it default, are what Indonesia needs.

Mukda Sunkool, the officer-in-charge at the Jakarta office of
the International Labor Organization (ILO), and her two
consultants Shafiq Dhanani and Carmello C. Noriel agreed in a
recent interview that the Indonesian government has launched a
series of initiatives that blunted the edges of the crisis when
it peaked in 1998.

"Let me put it this way," Dhanani said, "had the government
not taken certain action, such as the launching of the social
safety net, the poverty level would have been higher, the decline
in value of people's income would have been worse."

The Operasi Pasar Khusus (government intervention in the form
of nationwide distribution of subsidized rice) and scholarship
programs (where crisis-stricken families with school-age children
are given Rp 1,000 per month) are still in place, according to
Dhanani.

"They are very useful because they protect the poor," he said.
"If the two programs are canceled, as the labor intensive
projects have been, then those who are currently just above the
poverty line will drop below it."

But -- and here is the catch -- the government still needs to
pay a lot more attention and do more because the critical
problems actually remain the same, according to Sunkool.

"If we compare (the ILO assessment of the crisis in 1998) with
the current situation, we find that major issues remain. Not much
has changed since early 1998," she said. "We still talk about
lack of insurance and employment, about the absence of
infrastructure to help and protect workers."

Dhanani concurred, saying that the situation is very much the
same, as far as income and unemployment is concerned. "It is
still very serious. The situation during the crisis was bad, but
the government took action to control inflation. Now the value of
wages are 80 percent of what they were before the crisis, so the
situation is a little better than at the beginning of the crisis,
but still far below that of before," he said.

Dhanani presented statistics to support their opinion. The
total number of people who are openly unemployed -- namely those
not working and actively looking for work -- has increased from
four million to six million people, or from 4.7 percent to 6.1
percent of the total labor force between 1997 and 2000. This
relatively low level of open unemployment, however, should not
come as a surprise as many people cannot afford to remain
unemployed for long in Indonesia, in the absence of unemployment
benefits usually available to displaced workers in developed
countries.

There are also other people not presently working but also not
currently looking for work, perhaps because they believe there
are no jobs available. Data on the extent of this hidden
unemployment is not available, thus it is much more difficult to
quantify.

"Nevertheless, total unemployment (both open and hidden or
disguised) may be much larger than the official definition of
open unemployment used by ILO and the Central Bureau of
Statistics, perhaps even twice as high," Dhanani said.

Dhanani noted that the unemployment figure of some 38 million
used by the Ministry of Manpower is also misleading since this
would mean almost half of the Indonesian labor force of some 95
million being out of work. "This figure incorrectly includes
about 32 million people who are not unemployed at all, but who
are working less than 35 hours per week."

"Total employment actually grew, even though unemployment has
also risen," Dhanani pointed out. The paradoxical feature of the
Indonesian labor market is attributed to rising food prices and
food shortages and the drastic decline in real incomes in 1998
that forced many people who were outside the labor force before
the crisis, to take up income-generating work, particularly in
the agricultural sector, and to produce food for their families.

"Hence we saw many food plots cropping up even in urban areas,
many which still exist along the railway tracks and roads," he
said.

Compared with 1997, total employment has grown by 4.4 million
in 2000 for three reasons: because most displaced workers during
the crisis have to work, because the labor force has grown
independently, and because people outside the labor force, mainly
women, entered the labor market for the first time in 1998 to
supplement rapidly declining family incomes.

The crisis has reversed previous employment trends: employment
in manufacturing has stagnated while it has declined in the
construction and formal service sectors. On the other hand,
employment in agriculture and trade, largely informal, has grown.
The proportion of non-wage employment has grown from 64 percent
to 67 percent of total employment during 1997-2000.

The impact on manufacturing employment was of special note,
Dhanani pointed out. Total employment fell from 11 million to 10
million workers between 1997 and 1998 before coming back in 1999.
Most of these were engaged in household or cottage and small-
scale industries and they probably left manufacturing temporarily
to grow food, Dhanani said.

"The crisis had only a moderate impact on medium and large-
scale establishments," he said. "However, even here, medium-scale
establishments were far more affected than large-scale
establishments, due to the collapse in the purchasing power of
their less well-off customers."

The real impact of the crisis, however, can not be simply
proven in the figures of rising open unemployment simply because
many are too poor and do not have sufficient savings to remain
unemployed for any length of time which has seen lower real
earnings of all workers and increased poverty.

Real earnings of employees fell by 70 percent in the first
year of the crisis, according to national labor force surveys,
due to high inflation of 100 percent and nominal wage rises of
just 20 percent. While inflation came down by 5 percent to 10
percent per annum in 1999 and 2000, nominal wages continued to
grow at 20 percent per annum.

"So, real wages began to rise slowly, but reached only 80
percent in 2000 compared with their pre-crisis level," Dhanani
said.

Poverty incidence increased dramatically during the crisis. It
increased from 18 percent in 1996 to 24 percent in 1999. But
statistics of poverty are issued only every three years -- so
what happened in 1998 when the crisis was at its worst? Since on
the one hand, poverty was undoubtedly lower in 1997 compared with
1996, and on the other, much higher in 1998 than in 1999 (when
food inflation hit more than 100 percent), the crisis most
probably doubled the rate of poverty incidence in Indonesia.
"Probably as high as 37 percent in mid-1998," Dhanani said,
citing simulations of the statistics bureau.

"The severe economic hardships caused by the crisis across the
country and the fight over jobs and resources, may have
exacerbated ethnic mistrust, jealousy and latent conflicts and
provoked them into open violence," Dhanani concluded.