Labour market faces protracted recovery despite economic growth, says new ILO report

Analyses the impact of the global financial, economic and jobs crisis on Indonesia’s labour market and draws attention to some key policy challenges posed by the crisis.

Press release | 13 November 2009

JAKARTA (ILO News): Decent and productive employment must be placed at the center of economic and social policies to reduce negative effects of protracted labour market recovery from the global financial crisis, a new report by the International Labour Organization’s Office for Indonesia explains. The report will be launched and released on Tuesday, 17 November, in Le Meridien Hotel, Jakarta, from 10am – 1pm.

The report, Labour and Social Trends in Indonesia 2009: Recovery and beyond through decent work, points out that the global financial crisis has impacted Indonesia most severely through falling exports, which have resulted in widespread job losses with subcontracted, casual and temporary workers in export-orientated industries being hardest hit. Restricted credit availability for small medium enterprises (SMEs) hampers robust economic rebound and labour absorption.

“In many respects, Indonesia has weathered the crisis better, in relative terms, than many countries around Asia and across the world. Nonetheless, it has not escaped the crisis. We are, for example, already seeing an expansion in informal employment, where earnings and productivity are low, there is little or no social protection, and channels for representation and voice are limited,” said Alan Boulton, Director of the ILO in Indonesia, emphasizing the quality aspect of employment.

While the unemployment rate fell to 8.1 percent in February 2009, the impact of the crisis manifested itself in terms of the quality of employment. Slowing economic growth has prompted a steep fall in the growth of wage employment, which grew by just 1.4 percent between February 2008 and February 2009, compared to 6.1 percent in the previous period. While formal employment creation is stagnating, informal employment recorded a remarkable increase. The share of informal employment went up from 61.3 percent in August 2008 to 67.9 percent in February 2009.

The report notes that the global recession is showing early signs of bottoming out. However, the consequences for Indonesia’s labour market may be protracted; following the Asian financial crisis of 1997-98, it took several years for indicators such as unemployment, productivity, poverty and numbers of workers in vulnerable employment to return to pre-crisis levels. “Revitalizing the SME sector and improving the investment climate is the key to a faster recovery and employment creation,” says Kazutoshi Chatani, Economist of the ILO in Indonesia and co-author of the report.

The report looks beyond the crisis and examines how the foundations for job-rich development can be strengthened. It highlights the need for a social protection floor that includes improved access to employment opportunities, basic health care, education and protection of children, and social assistance for the poor, among others.

Enhancing productivity and gradually shifting to higher value-added activities can drive poverty reduction and higher living standards, the report says. The report suggests that education and training play a critical role in preparing the workforce to effectively adjust to structural shifts, changing technologies and volatile economic landscapes.

“Decent and productive employment contributes to the reduction of poverty as envisaged by the new Administration,” says Mr Chatani. He cautions that “the expansion of casual employment in Indonesia is alarming, and it is among this category of workers that the incidence of the working poor is the highest”. Between 2000 and 2008, annual growth rate of casual employment reached 8.4 per cent, which may slow down the pace of poverty reduction.

In the long term, the sustainability of Indonesia’s development will in no small measure depend on the country’s ability to protect its diverse environment and effectively address the challenges posed by climate change. The report points out that Indonesia still has considerable scope for improving its energy consumption efficiency. If successful, Indonesia may not only conserve resources but also reduce its vulnerability to commodity price volatility and provide opportunities for creating “green” jobs.

For further information please contact:

Kazutoshi Chatani
ILO Jakarta Office
Tel. +6221 3913112 ext. 119

Gita Lingga
Media Officer
ILO Jakarta Office
Tel. +6221 3913112 ext. 115
Mobile: +62815 884 5833