Government Urged to Increase Labor Absorption
The number of workers absorbed by new investment projects is decreasing. The government needs to increase labor absorption to revive the economy.
The number of workers absorbed by new investment projects is decreasing. The government needs to increase labor absorption to revive the economy.
JAKARTA, KOMPAS – Capital and technology-intensive investments have helped increase the industrial level. On the other side, the decline in investment in labor-intensive industries has significantly reduced labor absorption.
The decline in labor absorption, including in the formal sector, can affect economic growth. Based on data from the Investment Coordinating Board (BKPM), investment realization in the third quarter of this year reached a total of Rp 205.7 trillion (US$146.92 million).
The number of people absorbed by the new investments during the period totaled only 212,581 people. In the third quarter of 2018, investment realization was smaller at only Rp 173.8 trillion, but the number of the people employed was larger, reaching 213,731 people.
The decline in investment in labor-intensive industries has significantly reduced labor absorption.
Indonesian Employers Association (Apindo) chairman Hariyadi B Sukamdani said in Jakarta on Wednesday that in 2010, every Rp 1 trillion in investment could absorb around 5,014 workers. In 2018, the labor absorption ratio declined to 1,650 people per Rp 1 trillion in investment.
Hariyadi said, investments in the digital technology industry, including e-commerce, were considered good because they were able to create new businesses, especially micro, small and medium enterprises.
However, the government has yet to carry out intensive efforts to increase employment growth, especially in the formal sector, he said. "If labor absorption in the formal sector increases, it will drive economic growth," he said.
Based on data from Statistics Indonesia (BPS), there were 133.56 million people in the workforce in Indonesia as of August 2019. Of that number, 126.51 million people were employed and another 7.05 million were unemployed.
Of the total population employed, 56.02 million people (44.28 percent) worked in the formal sector. More than half, namely 55.72 percent or 70.49 million people, work in the informal sector. Between August 2018 and August 2019, employment with a rising trend included in the provision of accommodation, food and drink (0.5 percent), the manufacturing industry (0.24 percent) and wholesale and retail trade (0.2 percent).
Employment that saw a downward trend was agriculture (1.46 percent), financial services (0.06 percent) and mining (0.04 percent).
Indonesian Retail Entrepreneurs Association chairman Roy Nicholas Mandey said the increase in job openings in trade activities was not significant. The increase was due to the expansion of modern retailers, such as minimarket and supermarkets. In contrast, large-scale modern retail outlets have begun to reduce their expansion.
Workers are affected by the efficiency and the decline in the expansion of modern retailers.
"This phenomenon has an impact on employment. Workers are affected by the efficiency and the decline in the expansion of modern retailers," he said.
According to the chairman of the Indonesian Food and Beverage Entrepreneurs Association, Adhi S Lukman, the upper middle-class segment did not see their wages affected. "However, spending has not increased," he said.
Adhi said the decline in incomes was experienced by middle-low segments of society, especially those who relied on commodities. Declining commodity prices and weakening exports have become the root of the problem.
Village fund
Adhi believes that with the limited government budget, President Joko “Jokowi” Widodo is expected to direct the allocation of the state budget to activities that can have an impact on income and spending.
He said village funds, for example, could be used to build infrastructure, which would in turn generate income for the villagers. For the time being, the state budget should be allocated for activities that can bring a direct impact on the people and drive regional economies.
Separately, the head of the economics department at the Centre for Strategic and International Studies (CSIS), Yose Rizal Damuri, also said village funds and government social assistance could become the drivers of the people’s economy.
"Village funds and social assistance can become the drivers of consumer spending in the short-term," he said.
The decline in exports of commodities due to uncertainties in the global economy has affected export commodity producing regions. In fact, the slowing economic growth has also affected job creation.
Village funds and social assistance can become the drivers of consumer spending in the short-term.
In the third quarter, the economy grew 5.02 percent. The growth rate was the lowest since the third quarter of 2017.
The deputy for population and employment at the National Development Planning Agency (Bappenas), Pungky Sumadi, said slowing economic growth had affected job creation. Therefore, the unemployment rate in export-producing regions had the potential to increase.
"The slowing economic growth means there have been no additional economic activities, therefore employment has not increased and may even decrease," said Pungky.
Referring to BPS data, economic growth in export commodity producing regions has begun to decline. Economic growth in Sumatra declined to 4.49 percent year-on-year in the third quarter from 4.72 percent in the same period last year. Meanwhile, economic growth in Sulawesi also fell to 6.44 percent from 6.74 percent during the same period last year.
The number of people working in the mining and quarrying sector decreased to 1.42 million in August 2019.