JAKARTA (ILO News): Services are an important part of Indonesia’s global trade and thus have a significant impact on the domestic labour market and employment. This applies especially to employment generated through services exports, which grew at a moderate rate in the 2000s. Amounting to only slightly more than 10 percent of the value of total exports and imports, both exports and imports of services grew close to the same rate as commodity trade.
The 7.1 million jobs involved in services in relation to exports (taking into account both direct and indirect linkages), are more than the total number of jobs created by all manufacturing, a new study of the International Labour Organization (ILO) says. The study titled “Trade in Services and Employment in Indonesia” will be launched and released on Thursday, 12 July 2012, at the Ministry of Manpower and Transmigration premises, Jakarta.
The service sector, largely carrying the Indonesian economy during the recovery years after the Asian Financial Crisis, is now the largest sector of the Indonesian economy – bigger than agriculture and manufacturing combined. In just one decade, the share of services to GDP rose from 44 to over 50 percent, and the employment share rose by a similar magnitude, to slightly less than 50 percent of all employment in 2010.
In terms of employment, the study found that employees in service industries were marked by characteristics rather different from the stereotypes of the sector, which tend to focus on high levels of informality, and on services as an employer of last resort for rural ‘surplus’ labour. But, “compared with agriculture and manufacturing, service industries employed a higher percentage of white collar, formal sector and educated workers than the main tradable goods sectors,” said the study.
Peter van Rooij, Country Director of the ILO in Indonesia, underlined the need for Indonesia to consider removing some of the barriers to both foreign and domestic competition in services as this is likely to contribute to significant gains in output and employment for both domestic and overseas investors. “Reforms would need to be introduced judiciously. Complementary policies, such as those designed to improve the quality of relevant education and training institutions, should be considered. There would also be benefits from developing a regional set of common labour standards and rights for unskilled workers in the main industries of labour migration in ASEAN,” he added.
“Foreign direct investment – including in the services sector – does not only support sustainable economic growth in key sectors of interest to Indonesia such as manufacturing, logistics and tourism, it also brings about jobs, disseminates good labour practices and transfers technologies. The timely study underpins these findings. European investment is an integral part of this process and as of today over 1,000 European companies directly employ 1.1 million Indonesians. Still, the potential is much larger. A recent Vision Group of academia, business people and government officials from the archipelago and Europe recommended Indonesia and the European Union (EU) to start negotiating a Comprehensive Economic Partnership Agreement to advance win-win relation,” said Andreas Roettger from the EU Delegation.
The study was conducted by the ILO through its Project on “Assessing and Addressing the Effects of Trade on Employment (ETE)”, funded by the EU. The Project aims to analyze and support the formulation of effective and coherent trade and labour market policies that address the adjustment challenges that workers and employers face and expand opportunities for the creation of decent employment in developing countries.
The study aims to shed light on the growth of services in Indonesia linkages with other sectors in terms of value‐added and employment using statistics from the national accounts, trade and labour force data as well as input‐output data and related Indonesia’s Government policies on employment. The study was conducted by the ILO’s consultants, Chris Manning and Haryo Aswicahyono.