Eradication of unemployment 2019-2024: concepts and strategies

Natalius Pigai
Minister of Labor and Transportation Special Staff, Researcher and former Structural Official in the Ministry of Labor and Transportation of RI, 1999-2012

IO – A Case Story
In the early 2000’s, we were shocked and angered when we heard that Nir­mala Bonat, an Indonesian citizen from the East Nusa Tenggara Province, had been savagely tortured by her employer when she was working in a domestic capacity in our neighboring country of Malaysia. She was not only verbally abused and beaten, but she was also attacked with an iron. Yes, with a burn­ing hot clothes iron that she used to care for her employer’s clothing.

This is just one tragedy among thousands, or even millions, suffered by our citizens as they work in coun­tries all over the world. The issue is, how come we allow them to leave our country and become such menial workers so easily? Don’t they have bet­ter, more decent alternative means of livelihood? If we have to allow them to go seek their fortune abroad, how can we protect them?

This Indonesian Worker Foreign Placement Government Program high­ly contrasts with the mandate of the Constitution. Article 27 Paragraph (2) of the Constitution of 1945 states that “All citizens have the right to work and livelihood that is sufficient for human­itarian purposes.” In other words, the State has the obligation to provide de­cent jobs and means of livelihood for the people, especially those of low so­cio-economic condition. Therefore, the people have the right to demand this from the Government.

The open unemployment rate in February 2019 was 5.01%, or 6.82 million people. This number is separate from the non-fully employed, i.e. part-time workers (22.67%) and partially unemployed workers (7.37%). In other words, the total of openly unemployed and partially unemployed is 35.05% of the population. However, we have not cared sufficiently about this problem as a national issue, even though the primary causes of increased unemploy­ment run havoc without Government control. First, demographic volatility. To be specific, population growth rates affect the number of citizens entering the work market. Second, educational characteristics. This affects the quali­ty and productivity of the work force. Third, the economy, which will affect the absorption of the work force in the work market.

We seek to help our newly-elect­ed President and offer new plans and strategies for mitigation of national un­employment in the 2019-2024 agenda. This piece is something that we suggest the President do in order to prevent the humanitarian tragedy suffered by In­donesians who flock to foreign coun­tries and domestic metropolises with nothing but their hopes and few skills, in order to be able to obtain a decent livelihood.

Working-age Population and Work Force in 2018/2019
According to Worldometers’ data, Indonesia now has a population of 269 million people or 3.49% of the to­tal world population. Indonesia is the fourth-most-populated country in the world after China (1.4 billion people), India (1.3 billion people), and the Unit­ed States (328 million people).

The National Development Planning Agency (Badan Perencanaan Pemban­gunan Nasional – “Bappenas”) esti­mates that Indonesia’s population in 2020 will be 271 million people, with a population growth rate of 1.9%. The high increase of our country’s work force is a huge issue, especially when we note the rapid population growth. That 1% annual average population growth means that Indonesia has to welcome an additional 2 million citizens each year! At this rate, it is no wonder that we are the fourth-most-populous country in the world.

Statistics Indonesia (Badan Pu­sat Statistik – “BPS”) data released in February 2019 stated that the current number of productive age population is 196.46 million, increasing greatly from that of the previous year at 193 million. There are 136.18 million people of the work force ready to enter the working world this year, or increasing more than 3 million people from the 133 mil­lion reported in 2018. The percentage of full-time workers (a minimum of 35 work hours a week) in the population is 69.96%. Meanwhile, non-fully em­ployed population is divided into two, i.e. part-time workers (22.67%) and partially unemployed workers (7,37%)

To repeat: the average work force growth rate in Indonesia is two million people every year, increasing by 2.24 million people in 2018-2019. Of these 136.18 million, 129.36 million of them work. This is an increase of 6.82% from the 127.07 million workers in 2018. A full 60.28 million of 196.46 million total population is not part of the work force, with 16.5 million of the working-age population at school in 2019. They are not part of the work force. They grew 0.54 million or 3.46% from the previous year’s population. We need to monitor them carefully, because they might be­come newly-unemployed persons when they complete their formal education in the future.

The number of people working in the following fields have declined: Ag­riculture (1.00%); Government Admin­istration (0.23%); and Information and Communications (0.06%). Meanwhile, 74.08 million people (57.27%) work in the informal sector. Within the past year (February 2018-February 2019), the number of informal workers decreased by 0.95%.

The average monthly worker salary according to the National Work Force Survey (Survei Tenaga Kerja Nasional – “Sakernas”) in February 2019 was IDR 2.79 million. The average monthly sala­ry for male workers is IDR 3.05 million, while for female workers it is IDR 2.33 million. 7 out of the 17 national profes­sional categories have a lower monthly salary than the national monthly salary average. The average monthly wage for workers with university education is IDR 4.34 million, while that of workers with elementary school or lower educa­tion is IDR 1.73 million.

Unemployment in 2018/2019
The open unemployment rate is the proportion of clearly unemployed working-age population. In February 2019, the open unemployment rate was 5.01%, or 6.82 million. This figure is separate from that of non-fully-em­ployed population, i.e. part-time work­ers (22.67%) and partially unemployed workers (7.37%). The total portion of unemployed population, wheth­er openly or partially unemployed, is thus 35.05%. It is useful for the Gov­ernment’s reference in opening up new job opportunities, serves as the bench­mark of the success of labor programs year after year, and is the second most important thing to consider when eval­uating the success of economic develop­ment after poverty rates.

The Sakernas divides open unem­ployment into four groups: First, those who do not work and are looking for work. Second, those who do not work because they are preparing to open their own business. Third, those who do not work and are not looking for one, because they feel that it is impossible to get employed. Fourth, those who do not work because they have been accepted for employment somewhere, but have not started working yet.

The open unemployment rate de­creased slightly (0.12%) from 5.13% in 2018 to 5.01% in 2019. Even though overall open unemployment rate has decreased, its percentage in urban ar­eas is higher than in rural areas, with urban open unemployment at 6.30% (decreasing only 0.04% from the pre­vious year) and rural open unemploy­ment at 3.45% (decreasing 0.27% from the previous year). The highest open unemployment rate by education lev­el is among Vocational School gradu­ates at 8.63%, followed by combined College Diploma I/II/III graduates at 6.89%. This is because the work mar­ket for these two levels of education is insufficient. However, graduates of ele­mentary school or lower have a higher absorption rate in the working market. Maybe this is because they tend to be less demanding about work conditions.

The overall unemployment rate did decrease, from 7.01 million people in 2017 to 6.87 million in 2018, and down even further (5.01%) to 6.82 million in 2019. However, we need to note about the partially unemployed, those who do not receive much public attention. As a reminder, the percentage of full-time workers is 69.96% of the work force, and the total of non-fully employed workers (part-time workers and par­tially-unemployed workers) in Indonesia is 35.05% or 45.27 million of the total 129.36 million work force in Indonesia. However, this unemployment figure is open for debate.

Causes of Unemployment in Indonesia
In most markets, prices self-adjust in order to balance between demand and supply. In an ideal labor market, wages will also adjust themselves to balance between the quantity of the of­fered work force and the required work force. This wage rate adjustment will ensure that everyone works.

Naturally, the reality is far from be­ing ideal. There are always people who do not work, even though the econo­my grows rapidly in general. In other words, the unemployment rate will nev­er become 0%. This is because: a) work force supply is bigger than work force demand, b) there is a mismatch be­tween the quality of the required work force from those available in the work market, and c) job fairs are ineffective.

Oversupply of workers means that so many remain unemployed, or in­sufficiently employed. These include: a) people in the work force who do not have work, b) people outside of the work force who need and/or seek work, c) people who work less than what they want because of reasons beyond their power, and d) people who do work that is clearly below their skills or potential. They have low productivity, either be­cause they were forced to take in work lower than their qualifications, or be­cause the management in their work­place is inefficient.

The a) and b) groups are job seek­ers, and they are generally considered to be openly unemployed. Some in the b) group work force do not have work, while others have given up on seeking employment due to their belief that there is nothing available. They are desperate. Those in c) group are par­tially unemployed, because they work less than the normal 35 hours a week. Members of d) group are mismatched with their work. Their skills are too high for their work, or entirely unused. For example, an engineering doing adminis­trative work that even college graduates can do. There is usually very little data for this group.

Types of Unemployment
It is important for us to know about types of unemployment, so that we can start mitigating the overall issue. They are:

1) Transitional Unemployment

This type of unemployment general­ly occurs because job seekers generally do not know that there are opportuni­ties that match their qualifications and interests. On the other hand, entre­preneurs are also unaware that there are job seekers who satisfy the require­ments for the positions available in their company.

2) Seasonal Unemployment

This type of unemployment occurs because of fluctuations in the produc­tion of goods and services due to sea­sonal conditions. Such fluctuations may occur because of climate (e.g., land processing is usually performed during the rainy season) or due to social hab­its (the people shop more during Eid-el-Fitr, Christmas, and the New Year). This type is predictable, because they occur regularly.

3) Conjunctive Unemployment

This occurs because of reduced economic conditions or recessions. To be exact, reduced effective demand for goods and services lowers production and distribution activities. This causes both full and partial unemployment.

4) Technological Unemployment

This type occurs because of chang­es in production technology. These changes may be related to the work process, type of material used, or work productivity level. Technological unem­ployment frequently occurs simultane­ously with structural unemployment, because the use of new technology may change the economic structure of a market.

5) Structural Unemployment

Structural unemployment may oc­cur because of structural changes in the market of goods, usually in turn caused by the drop in the sales of specif­ic commodities due to the appearance of a similar new commodity. This type of unemployment frequently occurs in de­veloping countries because the econom­ic structure is insufficiently developed. It does not sufficiently generate produc­tive and remunerative job opportunities for the existing work force.

6) Special Case Unemployment

This type of unemployment occurs because some special groups in society cannot get jobs because of their limita­tions, such as physical, mental, or so­cial disability.

Anticipated Work Force in 2024
Unemployment issues indicate the condition of our national social-eco­nomic health. Unemployment may be seen as a labor issue, but in reality, it is strongly affected by national economy. Furthermore, increased population as well as increased number of educated citizens means that even more educat­ed workers are available. However, our current economic growth at a mere 5% per annum is far too weak to absorb these new workers. Even worse, the ad­ministrators of industrial relations are insensitive towards the Constitution’s mandate to continue to seek a way to eliminate, or at least minimize unem­ployment rates.

Many factors affect the increase of unemployment, both upstream and downstream within the production flow. We need strategies that can mit­igate these reasons. We can conclude that the people expect the following condition for the reduction of unem­ployment in the next Governmental term: As the Indonesian work force is projected to increase from 136.19 mil­lion people in 2019 to 146 million peo­ple in 2024, they expect an increase of employed work force from 129 million people in 2019 to 140 million people in 2024. They also expect a reduction of unemployment from 6.82 million peo­ple (5.01%) in 2019 to 4 million people 94%) in 2024. In other words, we need to have an economic growth rate of higher than 5%.

The highest drop in unemployment is especially expected on: young unem­ployed, low-education unemployed, the unemployed living in Java island, ur­ban unemployed, female unemployed, educated unemployed, and partially unemployed (the latter mostly live in rural areas).

Even though the people expect labor stability in Indonesia, it is not easy to set a target for reducing unemployment. Such a target depends on several basic assumptions: Annual average job op­portunity growth increases from 1.9% in 2015-2019 to 2% in 2019-2024; work force growth is reduced from 1.67% in 2014-2019 to 1% in 2019- 2024; annual average economic growth increases from 4.1% in in 2000-2004 to 6.0% in 2004-2009; and transforma­tion from informal sector to formal can be accelerated in both urban and rural areas, especially in agriculture, trade, services, and industry.

Efforts to Eradicate Unemployment
Indonesia’s current labor environ­ment faces both internal and external challenges. Internal challenges include factors such as the low quality of Indo­nesian workers, while external chal­lenges include our signing of interna­tional agreements such as AFTA, APEC and WTO. Such agreements pave the way for foreign workers to enter Indo­nesia. This must be anticipated with competence-based work training that upgrades the quality, professionalism, competence, and competitiveness of our workers in all fields. The various efforts and programs created to resolve these labor issues include: expansion and creation of job opportunities, im­provement of work force quality, im­provement of work market and job fair information, work force control, and industrial relations direction.

Despite these various efforts, in re­ality unemployment continues to rise. We need to check whether this is sim­ply related to the gap between work force supply and demand in the work market, or is it something else that can unite job seekers and employers.

The unemployment issue is a na­tional issue that touches the very live­lihood of the people. It is one of the Government’s responsibilities, and as such it must be considered seriously. Unemployment in Indonesia is highly complex, meaning it requires wise con­ceptual resolutions. This is only possi­ble by involving all relevant elements in the State, namely, the Government, the business world, the banking world and the common people.

Mitigation of unemployment in the future must prioritize the very root and basic concepts of the issue, instead of utilizing gradual resolutions. This is something we need to emphasize, be­cause we frequently take temporary and rushed decisions only to appease the masses’ wrath, while a wise and intelligent leader would make visionary decisions. Therefore, the writer is now setting homework for the President in resolving unemployment issues. The homework is an amalgamation of the many opinions submitted by the peo­ple.

Expansion and Generation of Job Opportunities
For the past few years, the Govern­ment has not provided sufficient job opportunities. However, our current volatile economy provides an opportu­nity for the common people to generate informal job opportunities. This condi­tion cannot guarantee the generation of qualified and highly competitive work­ers, because the informal sector does not depend much on specific technical qualifications. It is no wonder that the number of partially-unemployed work­ers increased greatly to nearly 38 mil­lion.

Total unemployment in 2017 in­creased 10,000 people from 7.03 mil­lion to 7.04 million people. In August 2017, open unemployment was 5.59%, increasing from 5.33% in February 2017. The elasticity of labor absorption has also decreased since 2010: The In­stitute for Development of Economics and Finance (INDEF) stated that each 1% of annual economic growth in 2016 could only absorb 110,000 workers. This is far lower than the rates in 2011, wherein each 1% of economic growth absorbed 225,000 workers.

Indonesia’s economic growth is ex­pected to remain stagnant from 2017 to 2020, hovering in the 5% range. This means that we will not be able to ab­sorb any new work force during that period. Neither the recent large invest­ments coming in nor the large number of national infrastructure projects have exerted any direct impact on the formal absorption of workers. In fact, most of these investments are in the capital-in­tensive sector.

Bappenas also stated that the elas­ticity of worker absorption in Indone­sia has not changed much since 2015. Within the past 3 years, each 1% an­nual economic growth absorbed only an average of 250,000 workers. This is much lower than the elasticity rate 10 years ago, i.e. up to 500,000 workers absorbed each year. The State is still unable to find solutions. This lowered absorption rate of the Indonesian work market is caused by the profusion and complexity of business regulations, worsened by the fact that our work force grows at 2.9 million a year.

In the future, there must be changes in the economic structure and flexibility in the work market. This must improve our worker absorption flexibility rate. One of the basic strategies that we can use to create and expand job opportu­nities is by changing the orientation of these strategies to job creation oppor­tunities, business productivity, and human resource capacity building. It is this kind of human resource-oriented, demographic-centered development that we need to carry out, as we have so many citizens in need of such support.