IO, Jakarta – Amid the hustle and bustle of a “political year”, the public needs to evaluate and critique the running of the current Jokowi-JK government, especially in the economic sector. Among the numerous issues that we need to evaluate, one of the most essential is the government’s ability to provide job opportunities. In the fourth year of the Jokowi-JK government, people at all levels have become aware of the difficulty of obtaining work. This inhibits buying power, raises the number of poor people, and widens income gaps.
Low Labor Absorption
Indonesia’s stagnant economic growth is in line with the low number of available job opportunities. In Quarter II of 2018, economic growth was 5.27%, only marginally higher than in Quarter I of 2018 at 5.06%. With economic growth remaining in the 5% range, we cannot hope for much absorption of labor. “Our economy’s ability to create job opportunities also remains weak,” said Economist Dradjad Wibowo to Independent Observer.
Dradjad’s statement is not without merit. He bases it on observation of the number of people who work for every 1% of economic growth. “I used to call this variable ‘job generation elasticity’. Perhaps ‘job generation ratio’ would be more appropriate,” he said. Dradjad explained that according to Statistics Indonesia (Badan Pusat Statistik – “BPS”) data for 2004-2017, the greatest increase in working population numbers occurred in 2012, at 3.55 million. This is followed by the increase recorded in 2008 (3.54 million) and 2007 (3.44 million). There was a decrease in 2014-2016 to 1.4-2 million new workers.
“The number rose sharply to 3.25 million in 2017. However, this figure is worrisome. Firstly, because according to sector, the biggest increase has occurred in the public, social, and individual service at 1.09 million new workers,” he said. This is because according to Dradjad, the sector includes job such as household assistants, barbers, and street hawkers, “…as well as semi-formal jobs such as social workers. These sectors clearly do not support job generation,” he said.
The trade sector (including dining and hotel) and industry sector were recorded as having created more than 1 million additional employment opportunities, i.e. at 1.05 million and 1.03 million each. “However, the retail sector crashed and many work-intensive manufacturing industries are in trouble, while they create a lot of job opportunities. It is rather odd that that these two sectors recorded a large number of new jobs,” he said.
Data on the “job generation ratio” variable shows that the 2015- 2016 economy only created about 290,000-340,000 new jobs per 1% growth. However, Dradjad said that in a normal situation, the number might reach up to 500,000 new jobs per 1% economic growth. “This means that not only the Indonesian economy suffers from stagnant growth, but it also has below normal job generation abilities,” he said. Yet in 2017, the ratio spiked to 640,000 new jobs per 1% growth.
“I am frankly suspicious of this figure. It is much too high, even for New Order rates, at a time where our development was better controlled. Furthermore, the biggest source comes from the public, social, and individual services. Many jobs in the sector are actually pathetic. On the other hand, the number of jobs generated in the trade and industry sectors does not match the actual situation. So yes, our job generation ability remains below normal, while the key for being able to resolve poverty and inequality issues is the ability to create decent jobs for all Indonesian people. We need to resolve this quickly,” Dradjad said.
Uchok Sky Khadafi, Director of the Center for Budget Analysis (CBA,) said job opportunity creation in the Jokowi Era is horrible, because economic growth targets are not achieved. In fact, the achievement remains only about 5%. Furthermore, there is the irony that the high number of investors in our businesses does not expand job opportunities, but increases the number of foreign workers instead (mostly from China). These are the two reasons why job opportunities have stalled, along with steep layoffs.
The Government constructs much infrastructure, but this fails to keep pace with labor growth. Many projects do not absorb new workers, because they are handled by State-owned Enterprises (Badan Usaha Milik Negara – “BUMN”) through assignments or appointments instead of bidding. The appointed BUMN then seeks out debt to finance the project. Therefore, the budget does not flow out into society, further limiting the availability of job opportunities.
The entry of foreign workers is inevitable, because the investors are canny people who bring in investments with the condition that they will be allowed to bring in their own workers. Our Government seems to be so stuck that they cannot afford to say no. “It is unclear what sector Indonesia is actually trying to prioritize nowadays. In agriculture, our most basic sector, we do not produce enough independently: we still import food. It is the Government’s fault that there are more workers in online transportation and such, instead of the basics like agriculture and energy. The Government should have the concept of building on food and energy independence to strengthen our nation. We should prioritize agriculture to achieve this, but it is currently the most neglected sector. There is no clear conception in the State Budget for agriculture, and money is wasted because of it,” Uchok complained.
Nailul Huda, an INDEF researcher, notes that the decreasing trend of job opportunity creation within the past 4 years is caused by the fact that there is insufficient investment in Indonesia for labor absorption. Most of the incoming investments are for works that do not require much labo r, such as infrastructure investments for building roads, bridges, and railways. They are capital-intensive, not labor-intensive.
Another factor is the fact that government programs, such as the Village Funds, are not focused on labor-intensive sectors. Most Village Funds are now used for constructing infrastructure, which does not absorb much labor. For the initial 2 years, most of these funds are used to construct items that do not generate many economic benefits, such as village gates and road markers. “It’s simply bad economic policy. We are focusing on infrastructure construction that does not absorb many workers, because other than the fact that technological advances mean that more work could be achieved by machines, but also because most infrastructure construction agreements stipulate that foreign workers are permitted to be brought in to do the work. For example, if you make an agreement to construct infrastructure with any company from China, the Chinese government would require that Chinese workers must be brought in,” Nailul Huda said.
According to existing data, labor absorption during SBY Era was better than during Jokowi’s. This means that labor absorption per 1% economic growth was bigger in SBY Era than during the Jokowi-JK Era, and that economic growth in SBY Era is of better quality than economic growth during Jokowi-JK Era. This is caused by erroneous government policies. All these policies cooked up by the Government’s economic team failed to generate economic growth according to target, and in fact entailed much debt.
The government’s “homework” remains the same for years: how to train and employ Vocational School (Sekolah Menengah Kejuruan – “SMK”) graduates. SMKs are the greatest contributors to the level of open unemployment, because the skills taught in existing SMKs do not match industry needs. This is regret table, as SMK is one of the best channels the government has for creating quality workers. The Government should improve the quality of SMK graduates so that they can become quality workers ready to work in industry upon graduation.
Investments coming into Indonesia must really generate labor absorption. The Government must also think of ways to improve the quality of existing industries in order to prevent more layoffs. Nailul Huda freely admits that the current economy is in a slump, causing a lot of layoffs to occur. But if layoffs were balanced with sufficient labor absorption, they should not have too much negative impact on the economy.
Other than SMK, even college graduates are frequently unemployed nowadays. According to Economist Burhanuddin Abdullah, there are many causes, one of them because available job opportunities are extremely limited. Furthermore, there are mismatches between the skills required by the job market and the skills offered by available workers. With declining job opportunity avail able, unemployment increases, even among college graduates.
Furthermore, the presence of foreign workers also worsens the difficulty of finding a job. With the large amounts of development being implemented, the construction sector should have been able to absorb a lot of workers. “Infrastructure construction is capital-intensive, and it has a high imported content, starting from workers to raw materials. Meanwhile, a lot of the foreign workers’ work job could have been performed by local workers,” Burhanuddin said.
Nailul Huda opines that government programs for creating new enterprises do not cause significant impact. The most important thing the government should be doing is to note the fundamental qualities of our domestic labor. Right now, what we need the most are workers with skills relating to the digital economy, robotic economy, and industrial tools and machinery that work efficiently. Yet it is the sector with the online transportation business.
One would generate little profit or benefit by working in agriculture. Therefore, the Government should create added value in the agricultural sector, such as establishing agroindustry and agro-tourism. If we can do this, then there will be more workers in the agricultural sector, because there is an incentive for farmers to work more. “We are now developing a digital economy for the agricultural sector. We hope that this will boom in society and many farming communities will use it,” Nailul Huda said. During the Jokowi-JK era, the number of workers in the agriculture, plantation, forestry, hunting, and fishery declined by 700,624 people. The mining and delving sectors have also lost nearly 50,000 workers. The financial institution, real estate, leasing, and corporate services sector shows a 50% slump in real estate or property. One of the causes of this slump is the fact that the property business has been declining from mid-2016 until the end of 2017.
Burhanuddin Abdullah reiterated that there are very few Job opportunity openings within the past 4 years. This is because economic our growth is minimal, only 5%. Economic growth affects the number of job opportunities that we can generate. “This is because our economy has an upward bias, it biases towards technology-intensive and capital-intensive industries with exports and markets being oriented to higher social classes. Therefore, the absorption rate for every 1% growth becomes even smaller,” he said.
Burhanuddin said that massive infrastructure construction is not in line with labor growth, because the items constructed are not what the people need. “Toll roads, railways, highways must be constructed in order to connect production centers with markets. Therefore, they must also be usable to carry goods, not only people. The economic impact of transporting only people would be much smaller than what it could have been. This is what happened: They opened up new regions (by constructing these new transportation channels), but they failed to open new industries for the people that would allow them to create new products in the markets. Infrastructure should be constructed with a clear sense of priorities, with stricter criteria, so that they are actually used to help increase production and productivity,” he said.
Promises vs. Realities
The Government claims that Jokowi’s campaign promise for labor absorption has been implemented properly. Minister of Labor Hanif Dhakiri said that 2.8 million new workers were absorbed in 2015; 2.4 million in 2016; and 2.6 million in 2017. He claims a total of 8,460,000 jobs were created within the 3.5 years of Jokowi-JK government.
Uchok categorically denied this statement. He said that Government claims are different from reality. “I would say that a lot has not been achieved. The Minister of Labor has been playing too much of an act instead of working. His millennial style is just a cover for his lousy financial management: The Ministry of Labor spends a lot of its budget for fictitious hotel expenses, fictitious business trips, etc. for its staff, especially expert advisor staff. They enjoy a lot of fancy facilities,” he said.
Burhanuddin Abdullah explained that in the 1990’s, 1% economic growth would be able to absorb about 400,000 workers. This amount is now reduced to 150,000 for each 1% economic growth. “So, let’s say that our current growth rate is 5%, that means that we can only absorb 750,000 new workers. Sadly, we generate 3 million new workers every year. We have an increase of open unemployment at about 2 million every year. That is a big burden on our economy,” he said.
As labor absorption should be linear to economic growth, Burhanuddin finds that the Government’s claim that it has succeeded in absorbing so many workers within the past 4 years to be questionable. “That number cannot have been achieved in just the formal sectors, but it might possibly occur if we include the number in informal sectors. However, we know that the informal sectors only employ people temporarily. This is a problem for us, because it is now the biggest sector in our economy, yet these workers will not get health benefits or other worker coverage, let alone retirement funds,” he said.
Therefore, we need to exert special efforts to formalize the informal sectors in our economy. “Thus, there are issues of institutionalizing that the current Government has overlooked and should now build. The next Government must think about how to formalize the informal sector gradually, so that these workers can get health benefits, retirement funds, worker coverage, etc.,” Burhanuddin said.
In order to resolve depressed markets due to low labor absorption, Burhanuddin hopes that the Government will focus on labor-intensive businesses that require a large number of workers. Furthermore, in order to stimulate the Indonesian economy, the Government must focus on reindustrialization, as deindustrialization has been afflicting us for years. “In 1996, our industry contributed nearly 30% of the GDP. If we can manage to achieve more than 30% contribution, the United Nations Industrial Development Organization (UNIDO) would have called us an industrial country. However, the crisis occurred, and along with it, industrialization. Our industry now contributes only 19% of GDP, which makes it difficult for us to recover. In the past, when the Rupiah weakened, we still had goods for sale that were cheaper than the goods made by other countries, so that we could recover, because people would come to buy our goods. Right now, the Rupiah has depreciated, but we have nothing to sell. We must direct reindustrialization towards agro-industry, which is labor-intensive and will help us develop faster. This would be the first step that we need to take to make sure that our workers are useful, productive, and can be absorbed by the economy,” Burhanuddin said.
On the other hand, Dradjad believes that job generation is a crucial econo-political change that would resolve poverty and income gaps. It would be much more effective than mere “cash aid” or direct assistance programs such as the Smart Indonesia Card (Kartu Indonesia Pintar – “KIP”), the Healthy Indonesia Card (Kartu Indonesia Sehat – “KIS”), and the Prosperous Family Savings Card (Kartu Simpanan Keluarga Sejahtera – “KSKP”).
One of the success indicators for every government is its ability to generate jobs, as it directly helps promote the people’s welfare. The Government’s actual presence is required more than ever in order to be able to resolve rife unemployment suffered by the people in all levels. It is time for the Government to deliver the proof that the people really need, instead of continuing to spout the same empty rhetoric. Is our Government able to do that? (Dessy Aipipidely, Ekawati)