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Indonesia EMPLOYMENT AND INCOME
Many developing nations face a similar dilemma:
although growth
in the modern industrial sector is critical for increasing
GDP, it
can provide only a small share of total employment
opportunities.
Indonesia's employment pattern illustrated this
dilemma: the industrial sector employed about 6.5 million
workers
in 1989--only about 9 percent of the total labor force,
whereas the
agricultural sector still employed 41 million workers--55
percent
of the total labor force (services accounted for the
remaining 26
million employed workers--35 percent of the work force).
The
distribution of benefits from economic growth depended
largely on
how government policies affected employment opportunities
nationwide and earnings in agricultural and service
sectors. Since
the population was still predominantly rural, the benefits
of
economic growth also depended on the opportunities
available in
rural areas.
Another major concern of government planners in the
early 1990s
was the rapid increase in the labor force. Repelita V
estimated
that the labor force would grow at a rate of 2.4 million
workers
per year, bringing the total to 86 million in 1993, up
from 74.5
million in 1988. (The labor force in the early 1990s was
usually
slightly larger than the total number of employed workers
because
of unemployment.) The rapid rate of growth reflected both
the
increase in the working age population, estimated at 2.7
percent
per year, and the increasing rate of labor force
participation
among women. The rate of increase of the female labor
force was
predicted to be 3.9 percent per year, compared with 2.4
percent per
year for the male labor force.
Unemployment in 1989 was estimated at only about 3
percent of
the total labor force. However, this figure ignored the
high degree
of underemployment--or workers employed in low-skill,
informalsector jobs because of the lack of better opportunities
(see Infrastructure and Services
, this ch.). Repelita V
expressed
government concern over the mismatch between the education
and
skills of workers and the available job opportunities. The
plan
noted that government employment policy should shift away
from the
public works employment programs of the past that
generated lowskill rural jobs, in favor of vocational training and
greater
assistance to small-scale enterprises.
Information on wages in Indonesia was frequently
difficult to
interpret because of imprecise definitions of job
categories and
different measures of labor. In his study of the
Indonesian
industrial sector, Australian economist Hal Hill reviewed
the
available data on employee compensation among medium and
large
firms. In the highest paid industry--basic
chemicals--labor
earnings averaged Rp260,000 (about US$234) per month in
1985. In
the lowest paid industry--clay products--earnings were
Rp32,000 per
month (about US$29). The industrial earnings average was
Rp84,000
per month (about US$76). The considerable interindustry
variation
presumably reflected different skill levels, but no
information was
available on the number of hours worked or the skills and
education
of the workers. Compared with wage levels in 1974, these
earnings
reflected an average increase of 5.6 percent per year when
controlled for inflation.
These average figures disguised to some degree the low
wages
paid to the least skilled and most numerous employees in
industry.
Although Indonesia in 1992 had minimum wage legislation,
outside
observers, including representatives of United States
labor unions,
observed that the minimum wage law and other labor
protection were
frequently violated. The American Federation of Labor
filed three
unsuccessful petitions with the United States government
from 1987
to 1990 to eliminate Indonesian tariff concessions under
the
Generalized System of Preferences because of labor law
violations.
The only officially sanctioned trade union in Indonesia,
the All
Indonesian Workers Union (SPSI), was tightly controlled by
the
government, and, until 1990, all strikes were illegal. The
government relied on the army to help quell a rash of
strikes
during September 1991 in the industrial area of Tangerang
in Jawa
Barat Province, about thirty-two kilometers west of
Jakarta.
Workers were protesting wages below the minimum level, set
at the
equivalent of US$1.07 per day in that area.
Earnings outside the industrial sector were typically
lower,
with the exception of earnings in some services such as
finance and
banking. The Department of Manpower reported the average
minimum
monthly wages in several economic sectors for 1989, which
ranged
from about Rp67,000 (about US$38) in the plantation sector
to
Rp213,000 (about US$120) in banking and insurance.
According to
this source, the average minimum monthly wage in
manufacturing was
Rp130,000 (about US$73).
Many scholars have researched changes in income
distribution
under the New Order. The conspicuous consumption of the
wealthy
Chinese minority and Suharto family members, a stark
contrast to
the very modest means of most Indonesians, underscored
concern
about whether the average Indonesian was better off after
two
decades of growth in GDP. The Central Bureau of Statistics
(BPS)
provided extensive data for investigation, including
decennial
population and agricultural censuses, ten national
socioeconomic
surveys between 1963 and 1987, and two major labor force
surveys in
1976 and 1986. In spite of the wealth of information,
disagreements
and uncertainties abounded, often because of changing
definitions
and incomparable data among different surveys, and
concerns about
the quality of data collected by the Central Bureau of
Statistics.
Nevertheless, a consensus emerged among many scholars,
including
economists at the World Bank and the contributors to a
major
economic review entitled The Oil Boom and After,
edited by
Anne Booth, that income actually became slightly more
equally
distributed from the 1960s to the 1980s.
The series of national socioeconomic surveys, known by
the
Indonesian acronym Susenas, were the most frequently used
source
for nationwide studies of income distribution and poverty.
However,
Susenas, based on a representative sample of 50,000
households,
only reported household expenditures, not household
income. To the
extent that richer households saved more in addition to
spending
more, the surveys may have distorted income distribution.
Based on
Susenas data, the World Bank reported that when ranked by
expenditure, the bottom 20 percent of population accounted
for
about 9 percent of total national expenditure in 1987,
while the
top 20 percent accounted for a little over 40 percent of
total
national expenditure.
A study in The Oil Boom and After summarized
Indonesian
income distribution from Susenas data with the Gini
coefficient, a
measure of concentration showing the relationship between
the
cumulative percentage of some groups of items (for
example,
households) and the cumulative percentage of the total
amount of
some variable (for example, income) frequently employed by
economists. A smaller Gini coefficient, which ranges from
0.2 to
0.6 for most countries, indicates a more evenly
distributed income.
The Gini coefficient for Indonesian urban dwellers fell
slightly
from 0.33 in 1969 to 0.32 in 1987, while for the rural
population
the decline was more pronounced--from 0.34 to 0.26.
Although income
was becoming more evenly distributed in rural areas, urban
areas
appeared to be benefiting relatively more from economic
growth. The
ratio of average urban household expenditures to average
rural
household expenditures increased from about 1.4 in 1970 to
1.8 in
1987.
The incidence of poverty, or the number of households
living
under a specified poverty level of expenditure, is also an
important indicator of the benefits from economic growth.
The World
Bank conducted an extensive analysis of poverty trends
during the
1980s based on the 1984 and 1987 Susenas surveys. The
study
concluded that both the percentage of the population and
the
absolute number of the poor declined during this period.
By 1987,
30 million Indonesians, or 17 percent of the population,
lived in
absolute poverty, while many more lived above but near the
poverty
line. The poverty line was estimated on the basis of the
expenditure necessary to maintain a daily intake of 2,100
calories
and to meet other basic needs. In 1987 the necessary
expenditures
amounted to Rp17,381 per month per person in urban areas,
and
Rp10,294 per month per person in rural areas.
The World Bank study applauded the overall success of
the New
Order regime in poverty reduction. The earliest reliable
estimates
of poverty in 1970 showed that 60 percent of the
population then
lived in absolute poverty. Since most of the poor earned a
living
in the agricultural sector, this success was attributed to
improvements in agricultural productivity, in part the
result of
direct government investments and appropriate
macroeconomic
policies such as moderate inflation and a generally
realistic
exchange rate. The government sustained the decline in
poverty in
the 1980s by avoiding major budget cuts in programs that
directly
affected agricultural and rural development.
Data as of November 1992
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