ABSTRACT
This study examined the process of economic and social change in Indonesia through the prism of the labour market. In the rapid growth phase of the Soeharto period (1976-1997) income poverty fell on a sustained basis as workers moved from agriculture to the more productive non-agricultural activities, the size of the wage employment sector expanded, some degree of skill deepening took place and real wages generally rose in line with the increase in productivity. Socio-economic progress was also evident when assessed in terms of indicators pertaining to education, health and nutrition. The 1997 financial crisis temporarily reversed this virtuous process. More than ten years after the crisis, one wonders whether Indonesia became the victim of a ‘lost decade’. Of course, the economy grew at respectable rates in that period. Indonesia was also on track to attain many of the Millennium Development Goals. The country underwent a remarkable political transformation, shedding its authoritarian past and embracing the brave new world of democratic and decentralized governance. Yet, these commendable achievements were overshadowed by the stresses and strains in the labour market. One cannot escape their baleful influence on the broader community. Average real wages were no higher in 2007 than they were in 1997. The rapid pace of structural transformation of the 1990s appeared to have faltered. Exports of labour-intensive manufactures, especially through the conduit of the TCF sector, no longer appeared to be the star performer. The steep decline in income poverty that characterized the pre-1997 period was not sustained. It is against such a background of promising changes and daunting challenges that the Indonesian government renewed its pledge to reduce poverty and transform the lives of millions by creating the conditions that would enable the labour market to play a major role in upgrading living standards. The ambitious proclamation of halving both poverty and unemployment by 2009 bears testimony to an expansive vision of Indonesia’s future. Just as Indonesia was finally turning the corner with the resumption of rapid GDP growth in 2006-2007, and the employment structure responded by beginning to lessen its reliance on agriculture and the informal sector, the country succumbed to the global financial turmoil in mid-2008, exactly ten years after the first devastating Asian financial crisis. The stock market lost two-thirds of its
value between January and September 2008. The rupiah lost a third of its value against the US dollar in just two months, October and November 2008, and the economy was forecast to slow down considerably in 2009 as a result of falling commodity prices and the declining demand for Indonesian labour-intensive exports, leading to the prediction of significant job losses.
