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.