Elly Burhaini Faizal, Jakarta – Indonesia is still facing high rates of time-related underemployment despite a continued decline in unemployment, indicating failures in the government's job creation program – in spite of rapid economic growth – a report shows.
The International Labor Organization's (ILO) new report on labor and social trends in Indonesia released last week shows that although unemployment has continued to decline, time-related underemployment, or workers who work less than 35 hours per week and are looking for a job or are available for more work stood at 14.1 percent in 2010.
The report also shows that most workers are employed by the informal sector, despite impressive economic growth. The report revealed that informal employment stood at 59 percent in 2010, slightly down from 61.5 percent in 2001. Employment in the regions outside of Java remains largely informal. In Papua, for example, 79.8 percent of employment is informal.
Kazutoshi Chatani, an economist at the ILO Jakarta Office, said that questions should be raised on slow progress on the creation of productive employment given that Indonesia experienced not only rapid economic growth over the past decade, but also saw rapid growth in investment, especially in regions outside Java.
The government recently unveiled the Master Plan for the Acceleration and Expansion of Economic Development of Indonesia (MP3EI) in eight economic corridors expected to spur more investment in the regions outside of Java.
The economic growth was also projected to accelerate in the coming years, standing at 6.6 percent per year on average in between 2012 and 2016, the Organization for Economic Cooperation and Development (OECD) said.
"Obviously, the opportunity is there for more investment and more economic growth. But how to translate this into the creation of productive employment remains in question," Chatani said on the launching of the ILO's report titled "Labor and social trends in Indonesia 2011: Promoting Job-rich Growth in Provinces". The report analyzes labor market trends at the provincial level.
To create more productive employment, Chatani said enterprises should play key roles in turning economic opportunities into job creation. "If you have formal enterprises in the economy and if these enterprises hire more workers, then more workers can work in the formal sector," he said.
That is not the case in Indonesia. According to the ILO report, the number of formal enterprises in Indonesia reached only 1.2 per 1,000 citizens in 2006, far lower than neighboring countries, such as Thailand, which stood at 4.3 per 1,000 citizens and 26.3 in Singapore.
"If Indonesia can create a better business environment, better access to capital, or more streamlined business regulations, perhaps it will have more enterprise, creating more formal employment, thus contributing to a further decline in time-related underemployment," Chatani said.
In the report, the ILO introduced the Employment Diagnostic Analysis (EDA) as part of an effort to accelerate job-rich growth in provincial levels. The method was developed at the ILO headquarters in Geneva and is being tested in East Java, East Nusa Tenggara (NTT), Gorontalo and Maluku.
"In realizing inclusive job growth, there is a need for suitable policy interventions at local levels," said ILO Jakarta Office director Peter van Rooij.
Rachma Iryanti, director for manpower and employment opportunities at the National Development Planning Agency (Bappenas), said creating more labor-intensive manufacturing industries was the key to increasing productive employment.
She said that as 50 percent of the labor force is still classified as low-skilled workers with only an elementary education, the labor-intensive manufacturing industry remains the best option for the government to create more formal employment, although it would provide investors better opportunities for capital-intensive industry as well.
"Slow progress in the creation of formal employment is closely related to constraints in the investment climate, ranging from poor infrastructure to unfinished investment regulations. We still have a lot more to do to improve the investment climate so we can promote more labor-intense manufacturing," Rachma said.