Employment Dimension of Trade Liberalization with China: Analysis of the case of Indonesia With Dynamic Social Accounting Matrix

Employment Working Paper No. 112

The ASEAN – China FTA raises a lot of concerns regarding its employment impact in Indonesia. The loss of millions of jobs has been predicted as a consequence of the final liberalization round, though few studies on ACFTA consider employment explicitly. This paper has two objectives. First, the employment effects of ACFTA in Indonesia on different groups of the labour market such as rural and youth employment are assessed.
Second, a relatively simple methodology is developed that can be used by government officials, employers, trade unions and civil society organizations to assess and quantify the impact of trade policy changes on employment and to deepen their understanding of the complex relationship between trade and employment. The methodology combines two analytical models. Trade shocks are assessed using SMART that calculates import changes resulting from tariff reductions. The resulting effects on employment are evaluated using a multiplier analysis based on the 2008 Social Accounting Matrix component of a Dynamic Social Accounting Matrix. The impact of the final step of ACFTA is likely to be limited for Indonesia in terms of employment. Our analysis shows a small net loss of employment in Indonesia in the short run with some losses for certain groups, including female and young workers, and gains for other groups, for example agriculture employment.