Labor-based industries needed to reduce poverty

Labor-based industries needed to reduce poverty

Yogita Tahilramani, The Jakarta Post, Jakarta

Poverty can be effectively addressed if the government
consistently adopts the methods of labor-based industries in its
public investment policies, an expert said on Monday.

International Labor Organization (ILO) consultant Inayatul
Islam said during a seminar here that the public sector in
Indonesia, like in other developing countries, played a major
role in infrastructure investment.

"An ILO study has shown that labor-based production methods in
infrastructure investment in Indonesia can generate as many as
1.2 million durable jobs over four years, without compromising
the standard of quality associated with equipment-intensive
production techniques," Inayatul said.

The three-day seminar, which began on Monday, centers on labor
market policies and poverty alleviation strategies as part of the
economic recovery of crisis-hit Asian countries.

Some 40 representatives from Japan, Malaysia, the Philippines,
South Korea, Thailand and host Indonesia are attending the
seminar, which is being sponsored by ILO in observance of
International Labor Day on May 1.

The World Bank has estimated that at least 30 million
Indonesians are currently living below the poverty line.

The bank's country director for Indonesia, Mark Baird, said
recently that the majority of Indonesians were poor or vulnerable
to becoming poor, and that to fight poverty economic growth was
essential.

Every year, Baird said, a further two million people become
economically active, creating a need for more jobs.

With some 36 million unemployed people in the country,
economists say Indonesia's economy needs to grow by 5 percent to
7 percent a year to absorb new job seekers.

Indonesia's economy is expected to grow at the most by 4
percent this year.

Inayatul said agricultural workers, rural households and non-
college educated people were at greater risk of falling into
poverty.

A comprehensive social insurance system is critically needed,
he said, and should include unemployment and retirement benefits
to provide protection to people who are temporarily unemployed or
who are no longer in the labor market.

"The ILO has made a strong plea for the introduction of
unemployment insurance schemes in East Asian economies," Inayatul
said.

Estimates suggest an average required contribution rate of
between 0.3 percent and 0.4 percent of payroll, between 1991 and
2000, would have been sufficient to provide all insured dismissed
workers over this period, including during the current crisis,
with 12 months of benefits, he said, quoting a 1998 study.

"In the case of Indonesia, the required contribution rate is
0.44 percent," he said.

According to a 2000 World Bank report, a household or
individual becomes more vulnerable to poverty due to fewer
physical assets, limited human capital and a lack of social
insurance system.

An empirical study by Suryahadi and Sumarto in 2001 showed
that the economic crisis not only increased the incidence of
poverty in the country, but significantly increased the number of
Indonesian households with a high vulnerability to poverty.

The number of poor households almost doubled from 1996 to
1999, which is the equivalent of about 27 million people falling
into poverty during this period.