LABOUR MARKET DYNAMICS IN INDONESIA Analysis of 18 Key Indicators of the Labour Market (KILM)

Transcription

1 LABOUR MARKET DYNAMICS IN INDONESIA Analysis of 18 Key Indicators of the Labour Market (KILM) By Puguh B. Irawan Iftikhar Ahmed Iyanatul Islam INTERNATIONAL LABOUR OFFICE JAKARTA INDONESIA 1

2 Copyright International Labour Organization 2000 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to the Publications Bureau (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland. The International Labour Office welcomes such applications. Libraries, institutions and other users registered in the United Kingdom with the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P9HE (Fax: ), in the United States with the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA (Fax: ), or in other countries with associated Reproduction Rights Organizations, may make photocopies in accordance with the licences issued to them for this purpose. First published 2000* ISBN ISSN The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. For information on how to obtain this publication, please write to the ILO Jakarta. Catalogues and lists of recent and forthcoming ILO books are available free of charge from the ILO Area Office in Jakarta, 5th Floor, the United Nations Building, 14, Jl. M.H. Thamrin, Jakarta 10240; fax: (21) ; budi@ilojkt.or.id Printed in Indonesia 2

3 Preface The inspiration to produce this analysis of the labour market dynamics in Indonesia was provided by the Key Indicators of the Labour Market (KILM) recently released by the ILO, Geneva at the global level. 1 Like the global KILM produced by the ILO in Geneva, the present one produced at the national level for Indonesia covers the same 18 indicators providing information on un- and under-employment rates, hours of work, gender- and age-based differences in employment, structural composition of employment, forms of employment (wage and non-wage), employability of the labour force based on educational differences, real and nominal wages, etc. At the UN General Assembly session held in Geneva in June 2000 which aimed at advancing the global social development agenda that was set at the 1995 World Summit for Social Development (Copenhagen), Juan Somavia, the Director-General of ILO emphasized the critical role of social and labour market policies which can only be formulated if the data set contained in the KILM is readily available. For instance, progress made in reducing gender inequality can only be monitored and measured if the KILM is updated at regular intervals. The ILO Jakarta Office has undertaken this task of assembling, analyzing and disseminating statistical information in order to facilitate the formulation of appropriate labour market policies in Indonesia. More specifically, this report has been produced under an ILO project (INS/99/007) entitled Assistance for Making Economic Recovery Employment-Friendly funded by UNDP, Jakarta and carried out within the cross-sectoral framework of the United Nations Support Facility for Indonesian Recovery (UNSFIR). This initial data base on KILM thus established should provide the capacity to the BPS (Central Bureau of Statistics) to regularly update the data so that BAPPENAS (National Development Planning Agency) and DEPNAKER (Ministry of Manpower) are jointly able to regularly monitor developments in the labour market for the purpose of developing appropriate labour market policies. Iftikhar Ahmed Director ILO Jakarta Office August ILO: Key Indicators of the Labour Market 1999 (Geneva, ILO, 1999a) 3

4 Acknowledgement This publication would not have been possible without the support and co-operation received from various members of BPS. Ali Said made a significant contributions to data compilation for several time-series indicators of the labour market and in data analysis. Tolkhah Mansyur provided statistical assistance by processing and evaluating the raw data from the Indonesian Labour Force Surveys (SAKERNAS). He also produced tables and graphs presented in the report. Djoko Wurjono and Kumidi helped document statistics for the indicators that were compiled from the published data. The publication would not have been possible without continuing typing assistance of Ine Indiravitri. Throughout the development of the Indonesian KILM, Agus Sutanto and Wynandin Imawan have provided valuable support for ensuring the technical accuracy of the data and the data analysis of the indicators. 4

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7 List of acronyms BPS GDP ILO ISIC KILM OECD Sakernas UNDP Badan Pusat Statistik or Central Board of Statistics Gross Domestic Product International Labour Organization/International Labour Office International Standards Industrial Classification of All Economic Activities Key Indicators of the Labour Market. Organization for Economic Co-operation and Development Survei Angkatan Kerja Nasional (Indonesian National Labour Force Survey) United Nations Development Programme 5

8 Introduction Trends in the 18 Key Indicators of Labour Market (KILM) for monitoring labour market dynamics in Indonesia As economic recovery proceeds in Indonesia, the availability of timely and detailed data on the labour market becomes increasingly important for several reasons. First, information on changes in labour market indicators over time is urgently needed for monitoring lessons learned from past developments, and to appreciate the progress made. Such an evaluation is essential for evaluating and ensuring that economic development in Indonesia has been placing human development as its ultimate goal. This is one of the main developmental goals in Indonesia, as outlined in development plans (Pelita) and the state s guidelines (GBHN). This is also in accordance with the 1995 World Summit for Social Development in Copenhagen, which declared the attainment of full employment as a basic policy. This was reiterated by the UN General Assembly Session held in Geneva in June 2000 whose aim was to advance the global social development agenda set at the Copenhagen Summit. Second, timely information on the labour market provides an essential data base and reference tool, not only for government to design more effective employment policies, but also for researchers to enhance their understanding of the dynamics in the world of work and of its complex dimensions. Although a data base on labour market indicators spanning over adequate time periods has not been compiled in one single publication in Indonesia, the available statistics in fact allow the construction of such indicators. Badan Pusat Statistik (BPS), or Statistics Indonesia, has been routinely collecting information on the labour force through the national labour force surveys (Sakernas) since 1977 up to now (the most recent one was completed in 1999). The results of the surveys are published individually for each year. Therefore, the present report attempts to compile from the readily available series of data from Sakernas and population censuses for , and to analyze the changes in major labour market indicators in Indonesia during this period. Following ILO s publication of Key Indicators of the Labour Market 1999, this report has undertaken analysis of time series data on 18 indicators (hereafter called as KILM) in Indonesia. The ILO s KILM project, a collaborative effort between ILO, experts from the Organization for Economic Co-operation and Development (OECD) and several national statistical offices, was established in The project was designed with two aims : (1) to develop a set of labour market indicators, and (2) to expand the availability of the indicators to monitor recent labour market trends. 18 indicators were selected on the basis of conceptual relevance, data availability and spatial comparability. As intended by ILO, these 18 KILM are expected to satisfy the ever-increasing demands of policy makers and the professional community for timely, comparable and accessible information on labour market indicators. The 18 KILM highlight the importance of major labour market statistics, such as labour force participation, employment, unemployment, under-employment, educational attainment of the work force, intensity of worked hours, wages, productivity and labour costs, as well as poverty and inequality. In the context of Indonesia, trends in the 18 KILM can provide a better insight on the magnitude of the changes over time in the world of work and its related dimensions. It can serve to enhance our understanding of many social and economic issues closely related to the causes and consequences of shifting patterns of labour market indicators during the process of development. Labour force and employment patterns tend to respond to fluctuations in macro economic indicators. Effects of rapid population growth, and social development such as educational improvement during the past periods on the size and growth of labour force in the subsequent periods can also be indicated in the trends of KILM over time. In addition, this analysis of trends in the 18 KILM highlights the experience of specific groups of workers, including women and youth, in Indonesia s labour market. Gender equality has long been traditionally recognized as one of the main issues in the world of work, but there is a lack of analysis and a statistical data base on this 6

9 issue in Indonesia. Special focus on young people involved in the work force is also crucial to determine the extent of their participation and their characteristics. Finally, with the range of information and easy-to-read presentation of what the figures mean, this report is expected to produce a useful document for policy making and analysis of labour market trends in Indonesia. Thus, the report emphasizes the current labour market development, while at the same time presenting a recent historical perspective. Summary of the 18 KILM 2 In accordance with ILO s manual on Key Indicators of the Labour Market (KILM), the analysis in this report focuses on the trends of 18 indicators of labour market in Indonesia. These indicators are organized into seven major dimensions of labour market, including labour force, employment, unemployment and underemployment, educational attainment, wages and compensation costs, labour productivity and labour costs, poverty and income distribution. The definition of each indicator is briefly summarized as follows. Participation in the world of work KILM 1. Labour force participation rate Labour force participation rate is an overall indicator of the extent of working-age population that is economically active in a country or region. It is measured by expressing the number of persons in the work force -- the employed and the unemployed, as a percentage of the working-age population. Thus, it indicates the relative size of the labour supply available for the production of goods and services in the economy. Gender and age group breakdowns provide distinct patterns of the labour force distribution, within and between countries. Female, young-aged and old-aged work force are often of common interest for analysis of the labour market in a country or region, besides those in prime or productive working-age (25-54 age group). 2 The entire summary is drawn from ILO, 1999a. Employment Six employment indicators are covered in the 18 KILM, suggesting the importance of these measures for policy making purposes. These six indicators constitute most of the important aspects of possessing jobs, including employmentto-population ratio (KILM 2), four major categorizations of employment (KILM 3 to 6), and a specific category of employment -- the urban informal sector (KILM 7). KILM 2. Employment-to-population ratio Employment-to-population ratio is defined as total employment as a percentage of the working-age population in a country. It is often considered as the most important indicator of the labour market status in the developing countries. This is simply because unemployment statistics, even where collected, necessarily conceal such problems as low earnings, a vast informal sector and lack of social protection. Employment-topopulation ratio indicates the extent to which the population is involved in labour market activities. The higher the ratio, the greater the extent of this involvement. Although the concept is nearly similar to the labour force participation rate (KILM 1), the employment ratio can exhibit different trends, as it indicates positive or negative labour market situation in a country. KILM 3. Status in employment Status in employment is a common indicator in many countries, distinguishing between three important and useful categories of the employed. These are: (a) wage and salaried workers; (b) self-employed workers, or employers and persons on their own account; and (c) contributing or unpaid family workers. Each of these three categories is expressed as percentage of the total employed which can be broken down by gender. This indicator is useful for understanding both the dynamics of labour market and the level of development of the economies. KILM 3 is closely related to employment-by-sector indicator (KILM 4). During the process of economic development in a country, change in employment structure is expected to occur from agricultural to industrial and services sectors, with corresponding increases in wage and salaried workers and declines in the shares of self-employed and contributing family 7

10 workers previously engaged in the agricultural sector. KILM 4. Employment by sector This indicator disaggregates industrial sectors of employment into three broad categories -- agriculture, industry and services, as defined by the International Standard Industrial Classification (ISIC). The agricultural sector covers activities in agriculture (food and estate crops), hunting, forestry and fishing. The industry sector includes mining and quarrying, manufacturing, construction and public utilities (electricity, gas and water). The services sector comprises wholesale and retail trade, restaurant and hotels, transport, storage and communications, finance, insurance, real estate and business services, and community, social and personal services. As with KILM 3, this indicator is expressed as the percentage of each of three broad sectoral categories to total employed in a country. Trends in the shares of employment by sector shows job growth and shifts in the broad sectoral scale. Shifts in sectoral employment are an important factor in analysis of productivity trends. This is because sources of within-sector productivity growth should be separated from productivity growth resulting from shift from lower to higher productivity sectors. KILM 5. Part-time workers The indicator on part-time workers identifies the number of the employed with total working hours being less than the determined fulltime as a percentage of total employment. Given no universal definition as to the minimum number of hours in a week that would constitute full-time work, and following the ILO s attempt to use a comparable 30-hour cut-off in as many countries as possible, the report applies this 30-hour definition. Two measures are included in this indicator : total part-time workers as a percentage of total employment, and the number of women employed part time as a percentage of the total part-time workers. KILM 6. Hours of work This indicator includes three measures related to the intensity of worked hours. The first measure indicates the number of persons usually working a marginal number of weekly hours (less than 10 hours); the second refers to those working excessive hours per week (more than 40 hours, presumably defined as the normal working weekly hours); and the third is an estimate of the total annual hours worked per person. It is worth noting that the first measure indicates the proportion of persons in employment whose usual worked hours are below a threshold representing one-quarter of the normal work-week. The excessive hours measure refers to the proportion of persons in employment who usually work beyond a threshold representing a normal or standard work-week. The term overemployment may describe this concept of those working excessive hours. The total annual hours of work measure accounts for the number of hours actually worked by the employed population during a year, excluding time off during the year for holidays, sick leave, layoffs, and seasonal work. KILM 7. Urban informal sector employment KILM 7 is a measure of the estimated number of workers in the urban informal sector as a percentage of total urban employment. In the absence of a standard definition, the informal sector workers in this report are those workers with status in employment as self-employed and contributing or unpaid family workers, as opposed to the formal sector workers covering those classified as employers and employees. Due to the data availability and the fact that activities in the informal sector are largely an urban phenomenon, the spatial scope of the KILM 7 is restricted to urban employment only. It is worth to note that the existence of the urban informal sector is important in the economic development of most developing countries, as well as some developed countries. In a country with high rates of population and labour force growth, and rapid urbanization process, the informal sector tends to absorb most of the growing labour force in response to the limited job opportunities in the formal sector in the urban areas. Thus, the indicator may capture labour market situations that are inadequate, but not covered by other indicators, such as the unemployment rate (KILM 8) and time-related underemployment (KILM 12). 8

11 Unemployment, underemployment and inactivity Among public concern, the most recognized measure of all 18 KILM is probably the overall unemployment rate, presented here as KILM 8. Three other measures that look at parts of the unemployment experience follow KILM 8. Youth, the group with the greatest incidence of joblessness, is covered in KILM 9. KILM 10 refers to the long-term unemployed, the group with the most difficulty to overcome unemployment. KILM 11 looks at the incidence of unemployment according to a person s educational attainment, with the main focus on those with inadequate education. The other two indicators covered here do not specifically relate to unemployment, although KILM 12 is sometimes combined together with unemployment measure for estimating broader measures of labour market under-utilization. KILM 12 provides an indicator of time-related underemployment, an incidence when the work hours of a worker are insufficient in relation to an alternative job situation in which he or she is willing and available to engage. Finally, KILM 13 covers the inactivity rate, a measure of productive labour market-aged persons (25-54 years old) who are not in the labour force. KILM 8. Unemployment In many countries, the unemployment rate is often known as the principal labour market indicator. This indicator measures the proportion of the labour force that does not have a job and is actively seeking work. Thus, the unemployment rate is defined as the quotient resulting from dividing the total unemployed (for a country/region or a specific group of workers) by the relevant labour force, which itself is the sum of the employed and the unemployed. It should not be misinterpreted as a measurement of economic hardship, even though there is often a high correlation between unemployment and hardship. The concept of unemployment is hence restricted to its use as an indicator of labour utilization, and it is not extended to other spheres of the economy of the respective country/region. KILM 9. Youth unemployment Youth unemployment is commonly regarded as an important policy issue for many countries, regardless of the stage of development. For the purpose of this indicator, the term youth is defined as persons aged 15 to 24 years old, while the term adult refers to those aged 25 years old and over. The indicator comprises four distinct measures : (a) youth unemployment rate (youth unemployment as a percentage of the youth labour force); (b) ratio of the youth unemployment rate to the adult unemployment rate; (c) youth unemployment as a proportion of total unemployment; and (d) youth unemployment as a proportion of the youth population. Analyzed together, these four measures of youth unemployment provide a fairly comprehensive indication of the problems facing youth in the labour market. KILM 10. Long-term unemployment This indicator looks at the incidence of unemployment in term of the time duration that an unemployed has been without work and looking for a job. It is most likely that the longer unemployment lasts the more severe it is. Shorter joblessness is often of lesser concern, allowing time for unemployed persons to seek and find optimal employment. In contrast, long-term unemployment can cause substantial financial problem, notably when unemployment benefits do not exist. The incidence of long-term unemployment is not generally the case for developing countries, where the duration of being jobless often tends to be short, partly because of the lack of unemployment compensation and partly because of the fact that most people cannot afford to be without work for long periods. It is assumed that unemployment with the duration of a full year and longer is too long, and thus it is worthy of special attention. Two measures of long-term unemployment are included: (a) the long-term unemployment rate -- the number of the unemployed one year or over as a percentage of the labour force; and (b) the incidence of long-term unemployment -- the number of the unemployed one year or over as a percentage of the total unemployed. 9

12 KILM 11. Unemployment by educational Attainment This indicator looks at the percentage distribution of the total unemployed for a country or region according to five levels of educational attainment: no schooling, less than primary level, primary level, secondary level and tertiary level. Unemployment rate in developed countries tends to be consistently lower among better educated people. However, it is often not the case for developing countries, where a shortfall of jobs may exist for the more highly educated. The unemployment rate by educational attainment can have important implications for both labour market and education policies. By taking the present educational levels of the unemployed into consideration, these data can be useful in improving the efficiency of educational system and training programs for jobless workers, or in designing employment creation programs. KILM 12. Time-related underemployment Time-related underemployment indicator refers to the number of employed persons whose work hours are insufficient, in which they are still willing and available for additional work during the reference period. Insufficient work hours here mean working less than the determined normal work-week that in the report is defined as a 30- hours cut off. This indicator was previously known as visible underemployment, and basically indicated the shortfall in the quality of work. The indicator is crucial for improving the description of employment-related problems, as well as assessing the extent to which available human resources are being utilized in the production process of the economy to promote full employment. The indicator covers two measures of time-related underemployment: (a) as a percentage of the labour force; and (b) as a percentage of the total employment. KILM 13. Inactivity rate The inactivity rate is defined as the percentage of the working-age population (25-54 years old) that is not in the labour force, neither working nor looking for job. This rate, when summed with the labour force participation rate (KILM 1) for the prime age group, will equal to 100 per cent. It is worth noting that individuals within this prime age group are generally expected to be in the work force. Thus, the importance of this indicator lies in the extent of the unutilized human resources in the production process of the economy and the reasons (if known) why these economically potential people are inactive, since they may have normally completed their education but not yet have reached retirement age. The inactivity rate among the prime working-age population can indicate the shortfall of a country s ability to create employment. Educational attainment and illiteracy KILM 14. Educational attainment and illiteracy This indicator looks at the level and distribution of educational attainment in the labour force. The indicator includes the educational composition of the entire labour force, as well as focusing on a particular youngaged group of the work force (25-29 years old). The statistics on the younger group provide a better insight of recent changes in the level of educational attainment in a country. In addition, KILM 14 also covers illiteracy rate, defined as the percentage of the adult population that are illiterate during the reference period. It is important to note that the educational level of the work force becomes an increasingly important aspect of labour market performance and national competitiveness. Education and skill acquisition are necessary to compete in the global economy and to make use of rapid technological advances. Wages and labour costs There are two statistics included in the indicator of wages and labour costs. KILM 15 provides information on the levels of average real wages in manufacturing, whereas KILM 16 shows the structure of employers average compensation costs for production workers in manufacturing. KILM 15. Real manufacturing wage indices Wage statistics represents one of the most important branches of labour statistics, measuring the general level of workers earnings. Statistics on real manufacturing wages are not the primary data, but result from the combination of two types of primary statistics wages and prices. The ILO defines real wages as the goods and services which can be purchased with wages or are 10

13 provided as wages. Data required for the computation of real wages are : (a) wage measure expressed in monetary terms; (b) a series of goods and services prices purchased by the employees; and (c) data on the consumption patterns of the employees. Thus, in a given country, changes in the purchasing power of wages resulting from changes in consumer goods and services prices to reflect item (b) and (c) can be indicated by adjusting the wage data item (a) with a consumer price index (CPI) during the reference period. KILM 16. Hourly compensation costs This indicator looks at the levels, trends and structure of employers hourly compensation costs for the employment of manufacturing production workers. Statistics on cost levels are expressed in absolute figures in US dollars, and a comparison in percentage terms shows the relative position of a particular country in relation to the United States (on the basis of US = 100). The indicator also provides the amount of non-wage labour costs as a percentage of total compensation costs, as well as the annual percentage change in total compensation costs over the specified reference periods. In this report, these indicators are also expressed in Indonesian currency (Rupiah). Average hourly compensation cost is a wage measure, indicating employers expenditure for the benefits granted to their employees as compensation for an hour of labour. These benefits accrue to employees, either directly in the form of total gross earnings, or indirectly in terms of employers contribution to compulsory, contractual and private social security schemes, pension plans, casualty or life insurance schemes and benefit plans in respect of their employees. This later group of benefits is commonly known as non-wage benefits. Its equivalent, employers expenditure, is termed non-wage labour costs. Labour productivity and unit labour costs KILM 17. Labour productivity and unit labour costs Productivity is defined as output per unit of labour input, and unit labour costs refers to the labour cost per unit of output. Output here is defined as value added which is the total production value minus the value of intermediate inputs, such as raw materials, semi-fabrics and energy inputs. Value added, often refers to gross domestic product (GDP) in the national accounts, is compensation for factor inputs such as capital (including depreciation) and labour. Labour productivity growth may be related to either increased efficiency in the use of labour, without more of other inputs, or because each worker works with more of other inputs, such as physical capital, human capital or intermediate inputs. Thus, labour productivity is measured by dividing GDP or value added with the total number of workers, and calculated for both the total economy and manufacturing sector only. Unit labour cost is defined as labour compensation per unit of gross value added produced. Total labour compensation is measured to include not only gross wages and salaries of employees, but also other labour costs that are paid by employers, including employers contributions to social security and pension schemes. Apart from employees compensation, labour costs of self-employed are included where possible, mostly imputed on the assumption that the labour compensation per self-employed person equals that of an employee. Therefore, this adjustment can only be made when the number of self-employed persons is available in labour force statistics in a country. For comparisons of unit labour cost levels relative to other countries, labour compensation is converted to US dollars on the basis of the nominal exchange rate. A unit labour costs index that is not influenced by the development of a country s currency relative to the US dollar is also presented. It should be noted that, even on a national currency basis, the unit labour costs indicator is not adjusted for changes in the living cost. Poverty and income distribution KILM 18. Poverty and income distribution The incidence of poverty can occur when individuals are unable to generate sufficient income from their labour to maintain a minimal standard of living. The extent of poverty, hence, can be related to an outcome of the functioning of labour market. Because employment is often the most significant, if not the only asset of 11

14 individuals experiencing the episode of poverty, the most effective way to improve people s welfare is to increase job opportunities and labour productivity through education, training, and prudent labour market policies. The estimated percentage of poor people in a country depends on the definition of poverty line. International comparison of poverty is always subject to different methodologies to set up the threshold of minimum basic needs as applied to value the poverty lines between countries. The estimates presented here rely only on national poverty lines rather than international poverty lines based on the US dollar. Additional indicators to measure the depth of poverty (poverty gap or P1) and the severity of poverty (P2) are included here. The Gini index is also presented, as it is a convenient summary measure of the degree of income (expenditure) inequality. Data Sources and Limitation The primary data source of the 18 KILM in this report is a series of the national labour force surveys (Sakernas) that was conducted every year by BPS-Statistics Indonesia. This report is covers the period for which the data on labour force with working age limit of 15 years or more are available. However, if some statistics are available from 1980, the analysis also extends to this period. For additional information, data on labour force on the basis of working age of 10 years or more are also presented in Appendix B in order to be able to provide comparable information for those who have worked in the labour force on the basis such working age limit. Finally, like all statistics generated in developing countries, measurement errors and arbitrary changes in definitions of key variables afflict the indicators compiled here. Hence, a good deal of care and caution need to be exercised in interpreting the numbers. 3 3 For a useful review of strengths and weaknesses of available labour market data in Indonesia, see Sigit (2000a, 2000b). 12

15 1. Participation in the world of work KILM 1. Labour force participation rate Analysis of trends in labour force participation rates is important to understand changes in the size and structure of labour market activity of a country's population over time. The size of the labour force is basically a function of some factors, including the size and age structure of population, population growth, employment and income opportunities available in the economy. These factors also determine the supply of labour and the demand for labour that characterize any given country's economy. But more importantly, the definition applied in labour force statistics, especially in term of how to define "usual main activity" and "working", can greatly affect the size of labour force in a country. This methodological issue matters a great deal if an international comparison of labour force participation is undertaken. In addition, the reliability of data dealing with females at work in most developing countries has long been the subject of serious controversy (Sinha, 1967; Boserup, 1970; Durand, 1975; Turnham and Jaeger, 1971; Standing, 1981; Turnham, 1993). As compared to males, females tend to be more involved in activities that are on the borderline between economic and non-economic pursuits. If they pursue gainful employment, they are also more likely to work part-time or seasonally in these activities (Hugo, et.al., 1987). Jones (1981) also confirmed that the definition of work applied in censuses and surveys in Indonesia can determine the size of female labour force in the country. Another factor determining the size of the work force is related to the extent to which particular population groups participate in the labour force. The level and pattern of labour force participation tend to depend on the available employment opportunities in the economy and the different demand for income between various population groups. Female participation in the labour force, for instance, tends to differ across age groups, in accordance with their marital status and different levels of their educational attainment. Thus as compared to males, the activity rates of females tend to be lower, not only because of their traditional dual role in household's economy as the case in most developing societies, but also related to the changing commitment to participate in the labour force over the period of their life cycle. Women are likely to retreat from the labour force when they get married, give birth and raise children, and then they possibly return to the labour market as their children are old enough. Improved educational attainment of female population is also frequently followed by increase in their participation in the labour force. Differences in the size of the labour force may vary between urban and rural population, partly due to different nature and extent of incomeearning opportunities in both areas; and among different socioeconomic categories. Furthermore, patterns in labour force participation rates by major age groups are often associated with the stages of development of a country. As national income increases, the activity rates of children, teenagers and young adults in the early twenties tend to decline. And at the same time the elderly people are also likely to withdraw from the labour force. It is argued that in developing countries economic growth is generally associated with educational expansion, and a shift from traditional subsistence agriculture to modern and formalised urban economy. This brings about a rise in the income of prime-age (25-54 years) male family heads as relatively compared to the income-earning opportunities of other family members. As the expected future income of children is assumed to be higher than the current expected income from working, parents tend to encourage their children to attend school for longer periods and thus discourage them to enter the labour force, especially if labour productivity is a function of 13

16 duration of schooling (Durand, 1975). The lessening role of subsistence farming in income and employment creation during the course of economic growth may also cause the declining participation rates of older age groups, due to a lack of job opportunities for them. Hence, all of these factors tend to greatly influence the overall labour force participation rates, yet the effect is generally weaker among females than males. With regard to the case of Indonesia, trends in the size and structure of labour force participation in the country indicated a dramatic change during the last three decades. The Indonesian labour force has well over doubled in size, from around 40 million in 1971 to almost 95 million in 1999, with participation rates at around 50% and 67% to the overall working-age (15 years or more) population respectively in both years. The growth rates of the labour force have accelerated from 2.3% per annum in the 1960s, 2.7% in the 1970s, to about 3% in the 1980s, and then remained constant to around 3.1% in the 1990s. This growth pattern in the labour force is a common feature of labour market situation in many developing regions. The case of Indonesia, and as in other South-East Asian countries, shows that a rapid growth in the labour force was initially associated with the changing demographic dynamics, which in turn will interact with the improved education to bring about a drop in the labour force growth rates and a change in age-education structure of the labour force (Jones, 1993). The rise in the growth rates of the Indonesian labour force in the 1970s and 1980s was the result of the entry of the large birth cohorts of the 1950s and 1960s into the working ages. As fertility began to decline in the 1970s, the number of child population decelerated, and thus in the 1990s the growth of the youngest segment of the labour force has almost ceased. At the same time, however, the older segments of the labour force continue to grow. Therefore, these trends indicate that it will take a long time to halt the growth of the overall Indonesian labour force, as the trends of different labour force segments continue to cancel one another out. Figure 1a and 1b presents trends in the age structure of labour force participation rates for males and females in Indonesia between 1986 and As expected in general, the participation rates by age show an inversed-u shape pattern, suggesting relatively low rates among the youth aged (15-24 years old), with the rates reaching the peak among the prime-aged (25-54 years old), and then starting to substantially decline among the older segments with the lowest rate experienced by the elderly (65 years or over). While male participation rates always well exceeded that of female, the rates by age groups for both tended to be constant during the period of , except among the oldest aged 65 years or more - notably female elderly. Especially interesting, the extent of labour force participation was not much different between those recorded in the economic crisis period of and the pre-crisis observation of There seemed to be no major impact of the crisis on the overall labour force participation rate. However, as will be discussed later, the impact might have been apparent on particular segments of the labour market. Figure 1a. Indonesia: Male labour force participation rates across age groups, (%) (age)

17 Moreover, a comparison of labour force participation rates between Indonesia and other South-East Asian countries shows some interesting findings. By 1997, for example, the overall rate in Indonesia was 66.3%. This figure was higher than the rate recorded in the Philippines (65.5%), Singapore (64.2%) and Malaysia (63.8%). However, the rate in Indonesia was much smaller than Vietnam (78.9%) and Thailand (74.8%) (ILO, 1999b). High rates of labour force participation in Vietnam and Thailand were in fact contributed by relatively high female participation rates at around 74.6% and 67.4% (1997 data) respectively in both countries, whereas female rates in other South- East Asian countries ranged only between 47% and 51%. (%) Figure 1b. Indonesia : Female labour force participation rates across age groups, (age)

18 2. Employment indicators As has been described earlier, discussion on the trends in employment indicators here covers six measures concerning the most important aspects of job possession in the Indonesian labour market during the period The discussion starts with the evaluation of changes in the employment-topopulation ratio, followed by changes in four important employment categorizations, including status in employment, employment by sector, part-time employment and working hours, and finally concludes with a discussion on the urban informal sector. KILM 2. Employment-to-population ratio Employment to population ratio may be considered as one of the most important indicators of the labour market status. It is expressed as the proportion of all employed to the total number of working-age population (15 years and above). This indicator is useful to describe the extent to which the working-age population has participated in productive labour market activities. In other words, the indicator can inform us how much of all potentially productive population aged 15 years or over - both actively and inactively involved in the work force, directly contribute to the production of goods and services. Thus, a high employment-topopulation ratio indicates the high employability of this potentially productive population. On the contrary, a moderate or low ratio in a country suggests that there is too high a proportion of its population that is actually potential but are not involved in productive labour market activities. In addition, gender comparisons of employmentto-population ratios are of particular interest to look at the overall gender disparities in the labour market activities in a given country. Figure 2 exhibits trends in employmentto population ratios for males and females in Indonesia during the period of Some interesting patterns appear in this figure. First, ratios of males were very much higher than those of females over time, showing male-to-female gap in ratios at around 31 percentage points consistently during the period of This indicates a greater extent of engagement among prime-aged males in productive economic activities. This obviously reflects a greater commitment for males to be increasingly involved in income-earning activities as most of them are bread-winners for their families. Relatively low employment-to-population ratio among females was also a reflection of their low participation in the labour force, as discussed earlier in KILM 1. Second, Figure 2 also shows that the ratios of employment-to-population in Indonesia slowly decreased from around 80% in 1986 to 78% in 1999 for males, and from around 50% to 48% for females during the same period. This tendency of declining employment-to-population ratios is also the case in many countries, notably in developed countries (ILO, 1999a). The experience of those countries was partly related to the drop in the labour force participation rates among males aged and 65 years old or over, as well as those aged years. The likelihood of earlier retirement among these age groups could be the reason of the declining employment-to-population ratio in those countries. But in the case of Indonesia, labour force participation rates tended to be unchanged during the reference period, and even this rate appeared to increase among the oldest segment of the work force. Thus, the plausible factor explaining the declining employment-topopulation ratio was associated with the decision of the increasing number of working-age population to stay out of labour market activities. Available data in 1997 shows that the overall ratio in Indonesia was around 63%, nearly similar to the ratio in Singapore (62.7%) and slightly higher than that in the Philippines (60.3%), but much lower than that in Thailand (around 71%). Comparison of gender break- 16

19 down reveals an interesting pattern. While the extent of female ratio in Indonesia indicated a similar inter-country pattern, the male ratio in Indonesia was the highest (at 80%) among these South-East Asian countries. (%) 85,0 80,0 75,0 70,0 65,0 60,0 55,0 50,0 45,0 40, Figure 2. Indonesia: Employment-to-population ratio, KILM 3. Status in employment The indicator of status in employment looks at three distinct categories of workers: wage and salaried workers, self-employed workers, and contributing family workers. Self-employed can be distinguished into those with paid employees and those without paid employees (own-account workers), whereas contributing family workers is also termed unpaid family workers. Changes in employment status provide a general indication on the dynamics of the labour market and the development level in a country. Specifically, the changing employment status provides information for understanding changes in workers' behaviour and working condition, as well as for identifying socioeconomic classes of individual workers. A large proportion of wage and salaried workers in a country indicates its Male Female Male + Female more advanced level of development achieved. In contrast, a sizeable share of self-employed without paid employees might reflect a limited job growth in the formal economy and a high rate of employment creation in the informal sector. Correspondingly, a large percentage of contributing or unpaid family workers could be an indication of backward development, limited employment generation, high incidence of poverty, and the dominance of agricultural and rural activities in a given country. Figures 3a and 3b show trends in status in employment for males and females in Indonesia during the period of Employment status in Indonesia was generally dominated by self-employed without hired employees (own-account workers), which largely contributes to the informal employment. Proportion of self-employment excluding the employers was around 46% in The trends of self-employed persons during the period did not show significant changes and tended to be relatively constant. Comparison between gender revealed a contrasting pattern by which the proportion of male self-employed has decreased, while there has been an increasing trend in self-employment among women. As pointed out above, one important measure of economic development is the size of wage and salaried employment. It seems that there is a strong relationship between economic growth and share of wage and salaried workers (see Figure 3c). As can be seen from Figure 3a, rapid economic growth was followed by the increase in wage employment. Prior to the economic crisis, the proportion of wage and salaried workers continued to increase as it rose from 26.4% in 1986 to 35.5% in 1997, while the crisis that hit Indonesia in mid-1997 has lowered significantly the wage employment to about 33% in 1998 and 1999 (see Appendix A). 17

20 (%) Figure 3a. Indonesia: Status in employment of male workers, women, this has further encouraged them to enter into paid employment Figure 3b. Indonesia: Status in employment of female workers, (%) Wage and salaried workers, or employees - Self-employed worker with employees - Own-account workers - Contributing family workers Wage and salaried workers, or employees - Self-employed worker with employees - Own-account workers - Contributing family workers Looking further into the data, gender differences in employment status in Indonesia are quite significant. Unpaid family workers have dominated female employment, while the largest proportion of male employed engaged in self employment. The proportion of female unpaid workers was more than double that of the male. Although, wage and salaried workers are much lower among women than men, women s share in wage employment rose more rapidly than that of men especially during the period Share of women in wage and salaried employment increased from 20.2% in 1986 to 29% in 1997, while among male employed it rose from 30.5% to 39.4% during the same period. With regard to a more rapid increase in wage employment among women than men, it can be argued that the inflow of women into the labour market has focussed public concern on the issue of equality of opportunity and treatment. Together with the improved educational level of As compared with developed countries, in developing countries like Indonesia, proportion of wage and salaried workers are much smaller, while the proportion of unpaid family worker as well as self employed are much higher. The proportion of wage and salaried workers in Indonesia accounted for around half that of the developed countries, while the share of unpaid family workers was around five times as that of developed countries. 4 Comparison between selected Southeast Asian countries shows that share of wage employment in Singapore and Thailand was much larger than in Indonesia. Indonesia could only catch up with the Philippines. In 1994 share of wage 4 Within developed countries, proportion of wage and salaried workers is as high as 70 to 90 per cent of the total employed, the self employed typically around 10 to 15 percent, and unpaid family workers as low as 0 to 4 percent (ILO, 1999a). 18