ABSTRACT
The three decades spanning the 1970s, 1980s and most of the 1990s witnessed rapid economic growth and were accompanied by sizeable structural changes in GDP and employment. However, in the decade following the 1997 Asian financial crisis, structural changes stalled even as the economy continued to grow at a respectable rate by international standards. In particular, the shares of the agricultural and manufacturing sectors stagnated both in terms of GDP and employment. The share of workers in regular wage employment increased only modestly, while employment in the informal sector remained stubbornly high, and casual employment rose. The post-crisis situation gave rise to the expression ‘jobless growth’. Just as GDP resumed rapid growth for two to three years in the mid-2000s, the country succumbed to the global financial turmoil in mid-2008, some ten years after the first devastating 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, during 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 exports, leading to the prediction of significant job losses. The first part of this chapter reviews the trends and structural changes in the economy and in employment before and after the Asian financial crisis. A review of sectoral GDP growth patterns confirms that the sectors which grew rapidly before the crisis, and which generated a strong demand for labour, showed little dynamism in the post-crisis decade. This confirms that the underlying sectoral composition of GDP matters for employment generation, and the important role that sectoral policies can play in this respect. It also shows that the expression ‘jobless growth’ applied mainly to the formal sector, while the natural, demographically-determined increase in labour supply was accommodated in the traditional, low-productivity agricultural and trade sectors. Media articles and the pronouncements of policy makers and labour activists often give the impression that the bulk of Indonesian employment consisted of salaried workers employed by profit-maximizing firms. This chapter shows that the reverse was the case, namely that the majority of workers in Indonesia worked for themselves, or for their families without pay, and that salaried
workers were in fact a minority. The implication of this diversity and vulnerability in employment status, developed in a later chapter on poverty, inequality and the labour market, is the need to shift concern from the openly unemployed looking for salaried work in the formal economy to raising the incomes of the working poor in the informal economy. The second part of the chapter examines the role of macroeconomic policies before and after the 1997 crisis. It argues that restrictive fiscal and monetary policies in the post-crisis period were narrowly focused on zero budget deficits and maintaining inflation at an unrealistically low level. This may have constrained demand, reduced productivity-enhancing investment in infrastructure and human resource development, and dampened economic growth and formal sector employment in the post-crisis period. The prospects for the Indonesian economy and employment following the second financial crisis of 2008 are briefly explored, though these remain essentially conjectural because the necessary employment data documenting the economic slow-down starting in 2009 will only become available in 2010.
