Indonesia's labor indicators deteriorate: ILO report

Indonesia's labor indicators deteriorate: ILO report

Ridwan Max Sijabat, The Jakarta Post/Jakarta

Overall labor market indicators for Indonesia and other countries
in Southeast Asia and the Pacific region have deteriorated over
the past decade, although some improvements have been observed
recently, ILO's 2004-2005 Employment Report says.

Released on Tuesday, the report said the deteriorating labor
indicators for Indonesia, the biggest economy in Southeast Asia,
was related to the prolonged economic crisis, which had severely
affected the country since it hit in 1997.

The report comes as no surprise as far as the government data
on employment is concerned. The latest government data revealed
that open unemployment had reached 9.5 million while disguised
unemployment had risen to 43 million.

Thousands of workers employed in forestry, manufacturing and
textile sectors have been dismissed or laid off since their
products could not compete with similar products from China,
Thailand, Vietnam and Korea.

Deteriorating or non-existent infrastructure in rural areas
and the high-cost economy is one of the many things that have
discouraged foreign investors from coming to Indonesia.

The country's labor productivity remains low, according to the
data, because 71 percent of the country's 100-million strong
workforce were under-educated, many with less than six years of
formal education. Only 2 percent of Indonesia's workforce are
graduates from universities or post-high school academies, while
the remaining 27 percent are university dropouts with
certificates from vocational training centers.

Analysts have urged Indonesia to completely overhaul and
improve the people's skills and productivity, for it to have any
chance of competing with Malaysia, Singapore, Thailand and the
Philippines in the ASEAN free trade market in 2007 and with China
in the China-ASEAN single market later in 2010.

In its report, the United Nations main labor agency concluded
that unemployment rates rose 2 percentage points higher than 10
years ago and employment-to-population ratio was lower than it
had been 10 years ago.

It said that the latter partly reflected a growing trend in
education: People are not actually looking for work so soon,
because they are studying for longer periods.

"But at the same time rising unemployment rates in the region
indicate that not enough employment opportunities exist," it
said.

The report showed an upward trend in productivity since 1993
that was much slower than in other Asian subregions, but higher
than in most other developing regions.

It noted that from 1967 to 1997, during former president
Soeharto's New order regime, Indonesia's Gross Domestic Product
grew by an average of 7 percent annually and this rapid economic
growth was mainly caused by high rates of labor-intensive exports
and was accompanied by a significant reduction in poverty and the
economy diversification to non-agriculture sectors.

"Although the development was built on strong macroeconomic
policies and supported by increasingly liberal trade and foreign
investment policies, underlying social, political, legal and
financial institutions did not develop accordingly. This lack of
functioning institutions, combined with high levels of
corruption, made the country vulnerable to shocks," said the
report.

The absence of strong institutions has made it more difficult
and costly for Indonesia to defuse the crisis than other crisis-
affected countries in the region.

Until the crisis, the report said, Indonesia had reduced the
share of employment in the agriculture relative to the employment
share in industry and services. After the crisis, this trend came
to a halt, partly because people moved back to rural areas as
they could no longer find employment opportunities in urban
areas.

"This can be taken as a serious sign of delay in the
development process, caused by the fact that social institutions
were not in place; and the unemployment rate, which was around 4
percent before the crisis, subsequently went up to over 6
percent," said the report.