Translating economic growth into job creation and poverty reduction Launch of the Labour and Social Trends in Indonesia report 13:00 Opening remarks 13:10 “Labour and social trends in Indonesia” 13:40 “Youth employment and skills development” 14:10 Coffee break 14:30 “Macroeconomic policies conducive to job ‐ rich and inclusive growth” 15:00 Remarks by Government representatives 15:20 Remarks by Worker representatives 15:30 Open discussion 16:00 Closing remarks
Labour and Social Trends in Indonesia Translating economic growth into job creation Jakarta, 14 April 2011 Kazutoshi Chatani Technical Officer (economist), ILO Jakarta Office chatani@ilo.org
Topics 1.Economic trends 2.Labour market trends 3.Translating economic growth into job creation and poverty reduction
Economic growth in Indonesia slowed after the Asian financial crisis. 15 10 Indonesia 5 Thailand Vietnam 0 Cambodia 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Malaysia Philippines ‐ 5 Lao PDR ‐ 10 ‐ 15 Source: World Bank, World Databank
Private consumption and investment contributed to growth Gross domestic product at constant 2000 prices (billion Rupiah) Source: BPS
Services ‐ sector ‐ led growth Contribution to GDP growth by sector (%, at 2000 Constant Market Prices) Source: BPS, ILO staff calculation
High growth of employment in the services sector Output and employment growth (2000 ‐ 09, annual %) Source: BPS, ILO staff calculation
Changing skills demand as the structure of economy shifts Share of workers by education and sector (%) Source: BPS, ILO staff calculation
Improving net enrolment rates in education Time trends in net enrolment rate in Indonesia (%, selected years) Source: BPS
Education still lags behind regional competitors… Growth of the labour force and employment (1990=100) Mean years Expected years of schooling of schooling Public expenditure on education (of adults) (of children) (as % of GDP) (as % of total public spending) Year 2010 2010 2008 2008 1.6 12.4 Cambodia 5.8 9.8 (2007) (2007) Indonesia 5.7 12.7 2.8 17.9 Lao PDR 4.6 9.2 2.3 12.2 Malaysia 9.5 12.5 4.1 17.2 Philippines 8.7 11.5 2.8 16.9 Thailand 6.6 13.5 3.8 20.5 Viet Nam 5.5 10.4 5.3 19.8 Source: Public expenditure on education: UNESCO Institute for Statistics, Data Centre Other data: UNDP, Human Development Indicators database
Employment growth lagged behind labour force expansion Growth of the labour force and employment (1990=100) Source: BPS
Youth suffers from hardly growing employment opportunities Growth of the labour force and employment (1990=100) Source: BPS
Quality of employment requires attention Share of informal employment and underemployment (%) Underemployment: working less than 35 hours per week Source: BPS
Large disparities across provinces Performances of provinces National average Unemployment Unemployment (7.9%) Informal employment Informal employment (62.1%) 90 Percentage of poor people (provincial poverty line) Percentage of poor people (14,2%) 83 82 80 77 74 74 (%) 73 72 72 71 71 71 70 70 68 68 70 67 66 64 64 63 61 61 61 61 60 58 57 56 56 53 50 50 48 40 38 34 36 30 26 28 25 23 23 22 20 20 19 19 19 18 17 17 16 15 15 12 12 12 10 10 10 10 9 12 9 9 8 11 11 11 11 8 8 7 7 9 9 8 9 8 8 8 5 5 8 7 7 7 6 6 4 6 6 6 6 5 5 5 5 5 5 5 4 4 3 0 Sumatra Barat Sulawesi Tenggara NAD Sumatra Utara Riau Jambi Sumatra Selatan Bengkulu Lampung Kepuluan Riau DKI Jakarta Java Barat Java Tengah DI Yogyakarta Banten Bali Kalimantan Barat Kalimantan Tengah Kalimantan Selatan Kalimantan Timur Sulawesi Utara Sulawesi Tengah Gorontalo Sulawesi Barat Maluku Maluku Utara Papua Barat Papua Nusa Tenggara Barat Nusa Tenggara Timur Bangka Belitung Java Timur Sulawesi Selatan Sumatra Java & Bali Kalimantan Sulawesi Maluku, Papua, & NT Sources: BPS (Unemployment data in August 2009 informal employment in February 2009 and poverty incidence in March 2009)
Economic growth, employment and poverty reduction Economic Growth Job ‐ less growth Employment Creation • Informal/casual employment Poverty Reduction • Low wages • Unequal access to productive employment
Critical constraints to growth: 1. Inadequate and poor quality of infrastructure Difficulties in land acquisition • 2. Weaknesses in governance and institutions Prevalence of corruption and insufficient • control • Lack of effective coordination 3. Unequal access to and poor quality of education • Financial burden (incl. non ‐ school fees such as transportation) Source: ADB ‐ IDB ‐ ILO (2009) Indonesia: Critical Development Constraints
Low density of formal businesses in Indonesia The number of registered businesses per 1 thousand citizens and poverty incidences Population (%) Population below US$1.25 a (%) below 2001 2005 2006 day (year) US$2 a day 5.2 (2007) 12.7 Brazil 26.5 30.5 ‐ ‐ ‐ Hong Kong SAR, China 55.9 65.9 71.7 41.6 (2005) 75.6 India 0.6 0.7 0.7 21.4 (2005) 53.8 Indonesia 1.0 1.2 1.2 0.2 (2005) 1.5 Russian Federation 12.5 20.3 20.8 ‐ ‐ Singapore 20.6 24.1 26.3 0.4 (2005) 11.5 Thailand 3.6 4.1 4.3 21.5 (2006) 48.4 Vietnam 0.2 0.6 ‐ Source: World Databank, KILM 6 th ed., author’s calculation
It’s difficult to start a business in Indonesia Ease of doing business in selected Indonesian cities Indicator Best performing city Worst performing city (global rank of 183 economies) Number of procedures to Yogyakarta Manado deal with construction 8 procedures 15 procedures permits (5) Days to deal with Makassar Surabaya construction permits 56 days 230 days (9) Days to register property Manado Surakarta 12 days 54 days (24) Days to start a business Yogyakarta and Bandung Jakarta 43 days 60 days (143) Cost to start a business Jakarta Manado 26% of income per capita 38.3% of income per (117) capita Source: World Bank and International Finance Corporation, Doing Business in Indonesia 2010
Role of the Government in financing SMEs and infrastructure development in Japan Public financial corporations Government 10,000 Yen Long ‐ term Post Office loans with (Post Bank) Tax revenue low interest rates Business and employment growth 10,000 10,000 Yen Yen
Real wage growth for income ‐ led growth Real wage index (2005 March=100) Source: BPS, ILO staff calculation
Labour productivity in the region Labour productivity per person employed (in 2010 US$) Source: The Conference Board Total Economy Database, January 2011
Public investment on social security can be higher in Indonesia Public social security expenditure (as % of GDP, latest available year) Source: ILO, World social security report 2010/11
Indonesian Jobs Pact: Tripartite consensus on job ‐ rich & inclusive growth • Employment creation • Strengthening industrial relations • Enhancing the quality and coverage of social protection • Improving labour productivity
Conclusions • Economic prospects are bright. It is time to reinforce the link between economic growth, creation of productive employment and poverty reduction • For Indonesia to tap into growth potential, improvement in infrastructure, governance and education is the key • Creating enabling environment for business would accelerate job growth in the formal economy • Gradual shift to income ‐ led growth: purchasing power of wages requires monitoring • Equipping the youth with skills and adopting technology and innovation would enhance productivity • Social security (social protection floor) can enhance income security, conducive to income ‐ led growth • Tripartite action on priority issues will pave the way to prosperity
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