Informal employment in Indonesia. Makiko Matsumoto (EMP/CEPOL, ILO) 23 September 2011
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1 Informal employment in Indonesia Makiko Matsumoto (EMP/CEPOL, ILO) 23 September 2011
2 Definition SAKERNAS: cross between employment status and occupation Occupation Employment status Own-account F F F INF INF INF INF INF Employer, with family or temporary help F F F F F INF F INF Employer F F F F F F F F Regular employees F F F F F F F F Casual agricultural employees F F F INF INF INF INF INF Casual non-agricultural employees F F F INF INF INF INF INF Contributing family workers INF INF INF INF INF INF INF INF 1 = Professional, 2=Administrative/managerial, 3=Clerical, 4=Sales, 5=Services, 6=Agriculture, 789=Producition, transport, labourers, 0=others
3 Casual employment as % of total wage emplyoment A focus on casual wage work Above 98% can be considered to be informal employment throughout the 2000s. Casualization of wage employment Male 15.0 Female
4 Drivers of formality/informality? Supply side Educational attainment and skills: level (not really) Population and labour force participation (possibly in times of crisis; otherwise, not much) Geographical location (effect seems to be fairly small) Demand side Public employment programmes (tracer needed on participants) Private (/public) enterprise growth (slow growth of regular jobs) Matching/Intermediation Wages (stagnating or delcining regular wages, especially in the non-agricultrual sectors) Labour market institutions (outreach/enforcement issues)
5 Some evidence on casualization of employment: Is it the composition (education, locality, age profile etc.)? Changes in predicted probabilty of casual employment due to changes in composition and within-group effects Male Female Due to changes in overall composition Due to changes in overall within-group effects Difference in predicted probability from 2001 Due to changes in overall composition Due to changes in overall within-group effects Difference in predicted probability from 2001 Souce: Author s calculation from SAKERNAS.
6 Some evidence on wages Median real monthly wage income 600, , ,000 Rp. 300, ,000 Regular, agricultural Casual, agricultural Regular, non-agricultural Casual, non-agricultural 100, Source: Author s calculation from SAKERNAS.
7 Some evidence on mobility across status
8 Formal-informal linkages Depends on how we understand the process of informalization/casualization: Portes et al. type of interpretation: informalization is here to stay ; Layard, Nickell and Jackman type of interpretation: job rationing mechanism in the formal/primary sector, others ending up in informal/secondary sector, and those who don t want to work for the pay offered in the informal sector will go unemployed ; or IFI type of interpretation: LM regulation limits generation of formal employment opportunities. In Indonesia, much more empirical analysis is needed to establish the first two, but the last does not, for the moment, seem to be the most relevant. And there is descriptive evidence that the first two types of mechanism are in place.
9 Growth, employment, and informality There has been a disconnect. Employment as such has never been an issue in Indonesia. Even during the East Asian crisis, employment remained steady. Growth rate has been steady, healthy, and 2007/8 crisis affected the economy only temporarily. Informality, as defined in SAKERNAS, has remained steady and high (at about 65% of total employment).
10 Priorities for policy research Have some clarity on: is it the supply side, matching or the demand side that is keeping the share of informal employment steadily high in Indonesia? At the moment, it doesn t really seem to be about the supply side concerns. Greater clarity on job rationing mechanism in regular wage employment. At the moment, it is not really the regulatory environment in the labour market that is driving it. Why has real wages stagnated so much, particularly in regular non-agricultural wage employment, with attendant wage income inequality?
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