JAKARTA (ILO News): Despite the negative impact of the global financial crisis felt across the region, Indonesia maintained positive economic growth both in 2009 and 2010. The Indonesian Economy is forecasted to grow annually at over 6 per cent in the coming years. This accelerating growth alone is not panacea for various labour market challenges, a new report by the International Labour Organization’s (ILO) Office for Indonesia says. The report will be launched and released on Thursday, 14 November, in InterContinental Mid Plaza Hotel, Jakarta, from 12 – 16pm.

The report, Labour and Social Trends in Indonesia 2010: Translating economic growth into employment creation, points out that the Indonesian labour market has untapped potential in generating productive employment. The unemployment rate has been on the decline; however, other labour market indicators reveal another picture of Indonesia’ labour market performance. The quality improvement of employment has lagged behind quantity growth of employment.

In spite of unrelenting expansion of the economy and jobs, the share of informal employment, which is often characterized as low productivity, low income and insecure activities, has hardly changed. Job opportunities for the youth (age 15-24) stagnated since the early 1990s. In many sense, the Indonesian labour market has never fully recovered from the impact of the Asian financial crisis of 1997/98.

“In many respects, Indonesia has weathered the global financial crisis better than most countries and economic prospects for the coming years are also bright. The question is, however, whether and how Indonesia can seize this opportunity and reinforce the link between economic growth, employment creation and poverty reduction,” said Mr Peter van Rooij, Director of the ILO in Indonesia.

The report analyzes underlying causes of deficiencies in productive employment. “The Indonesian economy has been shifting to the services, but education and skills development have not matched with the fundamental changes in skills demand”, said the author of the report, Mr Kazutoshi Chatani, Technical Officer (economist) for the ILO Jakarta Office.

According to the report, Indonesia has been losing competitiveness in labour-intensive manufacturing and economic and jobs growth have been led by the services sector that demand relatively high skills. Wage gap between university graduates and workers with secondary or primary education has been widening, reflecting the mismatch in skills demand and supply.

“Indonesia is blessed with plenty of economic potential”, the author remains optimistic, but strongly called for “a set of policies that would enable people to effectively tap into the potential and create productive employment”. The report notes weak labour market institutions (e.g. porous income floor, limited social dialogue and collective bargaining), ineffective skills development coordination and skills recognition, onerous business regulations and under-developed social security, inter alia, as areas where policymakers’ attention is desired.

In addition to analysing the labour market at the national level, the ILO has been paying increasing attention to employment situations at the provincial level because of a considerable divergence in labour market outcomes from province to province. Given different needs for policy intervention in provinces, the ILO embarked on employment growth diagnostics in three provinces in Indonesia: East Nusa Tenggara, East Java and Maluku.

“Uniqueness of economic structure and diverse labour market conditions in each province deserve analysis for custom-made policies that address particular challenges in provincial labour markets,” said Mr Chatani, hinting a focus of the next issue of the Labour and Social Trends for Indonesia report.

For further information please contact:

Mr Kazutoshi Chatani
Economist
Tel. +6221 3913112 ext. 119
Email

Ms Gita Lingga
Media Relations Officer
Tel. +6221 3913112 ext. 115
Email