INDONESIA EMPLOYMENT POLICIES: PROBLEMS AND CHALLENGES

Transcription

1 INDONESIA EMPLOYMENT POLICIES: PROBLEMS AND CHALLENGES Rahma Iryanti Deputy Minister for Poverty, Labor, and SMEs National Development Planning Agency 24 February 2015

2 BACKGROUND From 2005 to 2014, Indonesia s economic growth has allowed employment to growth more than the labor force: Average economic growth during was 5.8 percent. Average employment growth during the same period was 2.0 percent, while the labor force grew 1.7 percent. Therefore, unemployment rate was down to 5.9 percent in August The Government has also raised investment on hard and soft infrastructure by providing labor-intensive infrastructure projects, poverty reduction programs, and skill and competitiveness-enhancement programs. Structures of the Indonesian Economy: The economic growth mostly came from service sector, which created most of employment. The share of manufacturing sector to GDP is declining Eksports dominated by primary products Employment in manufacturing sector only around percent 2

3 BACKGROUND Around 56% of the labor force are low-skilled (primary school or lower background) and most jobs are informal (68%). Labor force are abundant, but decent jobs are limited. Skill mismatch is still high. Low recognition of certificates of competency, domestically and internationally. Very few international competency standards adopted by training institutes. Our migrant workers are mostly low-skilled and susceptible to cases of human rights violation. 3

4 Issues and Challenges in Labor Market 4

5 Demographic Bonus (DB) and it s Policy Implications DB started from 2012 the lowest of dependency ratio will occure between DB will increase labor force with productive-age in line with private saving source of economic growth DB can not be harvest automatically, there must be appropriate policies to support it, such as: Increase in health services Skill improvement through education and training Population growth controll Economic policies supporting labor market flexibility, trade openness, and private saving Source: BPS & Bappenas 5

6 EDUCATIONAL BACKGROUND Vs ECONOMIC SECTOR 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: National Labor Force Survey, 2013, (Bappenas Calculation) Basic Secondary Higher Share of Employment Almost 40% of employment are in agriculture, but around 90% of workers in this sector are low-skilled. Sectors such as social/personal services; electricity, gas, water; and finance require more skill (higher education). The rest is dominated by people with basic education. 6

7 Indonesia Youth Unemployment Facts University 5% Diploma 3% Vocational School 17% Primary 22% Senior High School 28% Junior High School 25% Source : Bappenas Calculation (Indonesia labour force situation. 47% are low educated 53% are educated (higher than senior high school and above) If they are educated, why can t they work? - Limited opportunities - Limited attracted opportunities at rural level 7

8 Labor market is not yet efficient Negative growth of several labor intensive industries results from, among others, the high increase of minimum wage. High minimum wage increase has influenced our competitiveness, indicated by low ranking of our labor market efficiency, according to WEF Global Competitiveness Report. LABOR MARKET EFFICIENCY PILLAR, from 142 countries No. Labor Market Efficiency Redundancy costs, weeks of salary Rigidity of employment index (firing, contracting, outsourcing) Hiring and firing practices Flexibility of wage determination Cooperation in labor-employer relations Source: Global Competitiveness Report, World Economic Forum Redundancy costs and flexibility of wagedetermination concern the private sector the most. In , from 147 countries, Indonesia stood at rank 137 and 114.

9 Manufacturing Industries: Production Growth Medium and Large Manufacturing Industries: In general, production of manufacturing industries indicates a positive growth in However, not all industries show a production increase. Positive Growth Negative Growth Types of Industries Growth Types of Industries Growth Pharmacies 13,19% Basic metal -8,48% Food 12,75% Textile -8,32% Tobacco 5,42% Leather and footwear -6,96% Clothing 4,91% Furniture -6,60% Transport equipment 3,57% Paper -4,37% Road vehicles 3,23% Beverages -0,50% 9

10 Over the last decade, poverty rates decreasing but inequality increasing... GINI ratio & Poverty rate Population of the poor Source: BPS & Bappenas Poverty rate Poverty target Source: BPS & Bappenas Poverty rate GINI ratio Since 2010, poverty reduction slowed, in absolute terms declined by about 1 million poor people per year. Poverty level (September 2013) 11.47% 11.37% up from (March 2013) because of high inflation dominated by the increase of staple food prices, mainly due to fuel price hike in June

11 However, we see some improvement Formal workers, in terms of number and contribution, have been improving over the years. On the other hand, the number of informal workers as well as unproductive workers, such as casual workers in agriculture and nonagriculture, and unpaid family workers, has been declining. Segment of Formal and Informal Workers Informal Formal 80% 60% 40% 20% 0%

12 Structure of sectoral workers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Pertanian Industri Perdagangan Bangunan Jasa Kemasyarakatan Workers in non-agricultural sector has been improving significantly, followed by diminishing number of workers in agricultural sector, despite some deceleration. However, workers in industry tends to be stagnant. The proportion of workers is relatively steady at 12 percent to 14 percent for more than a decade. Meanwhile, workers in service sector continues to grow well, reaching more than 50 percent. 12

13 But we have social protection system in place SOCIAL PROTECTION IMPLEMENTATION Social Assistance Varied programs to protect the poor and vulnerable Prevent irreversible loss of human capital links to education and health outcomes Rapid response to crises National Social Security System Basic insurance coverage for workers against shocks Mandatory contributions Increases labor mobility Labor Market Interventions Labor policy supporting economic plan and social welfare improvement for the people Skill building Job search 13

14 FUTURE CHALLENGES Indonesia Economic Transformation and Employment Creation (Medium Term Development Plan-MTDP )

15 Why Economic Transformation? Escaping from the middle income trap Responding the global economic challenges Strengthening competitiveness Improving economic resilience Assuring food, energy, and water security. Improving the quality of development through inclusive growth Reducing poverty and unemployment Environmental sustainability 15

16 GDP Growth, Poverty and Unemployment 2012 DEMOGRAPHIC BONUS 2031 USD Middle Income Trap Threshold Medium Term Plan 2 Medium Term Plan 3 GDP Growth 2014: 5,02 % GDP per capita 2013: USD ,7-8 % Per year 2019: Towards USD Poverty rate 2014: 10, : 7-8 % Unemployment Rate 2014: 5,94% Source: Technocratic Plan and MTDP-Bappenas 2019: 4,0-5,0% 16

17 17 CHALLENGES TO CREATE QUALITY EMPLOYMENT 1. Improving productivity, by reallocation of workers to economic activities with high-productivity. This challenge relates to structural transformation of the economic sector to highly-productive sector. The expected growth is growth that can absorb employment in a large number without lowering productivity. 2. Improving worker s standard of living, especially those who are among 40 percent of population with lowest income (including working poor), by providing productive employment opportunities. This challenge relates to: (a) Availability of new employment opportunities as a means to improve income; (b) Creation of new jobs needs new investment, FDI or local; (c) Availability of productive employment opportunities for unemployed and working poor; (d) Working poor s standard of living is improved by providing jobs to vulnerable workers. 3. Improve Industrial Relations: (a) Rights at work, (b) Promote union-employer collective bargaining processes, (c) new trend/best practice decentralized system with strengthened union movement and collective bargaining, (d) Dispute settlement.

18 CHALLENGES TO CREATE QUALITY EMPLOYMENT 4. Extending employment opportunities to educated youth labor force, according to their respective education. This challenge relates to the increase of educated youth labor force participation rate (19-24 year old). Such excess supply at high level of education may continue if structural problems are not solved. This will result in an increasing number of educated unemployment. High education is not always consistent with the demand, especially if the goal is just to pursue high education degree without suitable qualifications. 5. Increasing labor supply in terms of quantity and quality to support local economic activities. Uneven distribution of labor force among islands and among provinces/regencies/cities leads to an imbalance of labor production factor. Therefore, investment or local economic development is concentrated in high populated regions. 18

19 CHALLENGES TO CREATE QUALITY EMPLOYMENT 6. Improving the Skills of Workers: Skills upgrading of the current labor force is crucial in the short to medium run Building the right skills for work starts from the early ages and basic education Even if the quality of basic education could be fixed instantly, the first graduates of the fixed system will enter the labor force in 2025 Even if the quality and relevance of post-basic education could be fixed instantly, it will only affect 10 percent of the labor force by 2025 In reality these reforms will take time, while the skills shortage continues to constrain the capacity of the Indonesian economy to growth and create more and better jobs Skills upgrading of the existing labor force, particularly new entrants, is a crucial policy to address the skills shortage in the short to medium term 19

20 20 THANK YOU