Toward Inclusive Growth in Indonesia : Improving Trade and - PowerPoint PPT Presentation

Toward Inclusive Growth in Indonesia : Improving Trade and Employment Guntur Sugiyarto*) Asian Development Bank Conference on Trade and Employment in a Globalized World. Jakarta, Indonesia, 10-11 Desember 2012 *) The views expressed here are those of the author and do not necessarily reflect the views or policies of the ADB .

Outline of Discussion 1. Key Outcomes: – Economy – Trade and Employment – Labor Market (LM) and Employment 2. Problems in LM and Employment 3. Key Issues on Trade and Industry 4. Government Interventions 5. Concluding Remarks

Failed Structural Transformation • Declining industry replaced by service sector since 2000 • Higher growth of Agriculture compare than industry lately • Four different areas with two “red districts” Growth of GDP by Sector: Agriculture, Manufacturing and Services, 1993-2009 (%) 15.0 10.0 5.0 0.0 Percent 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -5.0 -10.0 -15.0 -20.0 GDP Agriculture Industry Services Source: Calculated from the Key Indicators for Asia and the Pacific

Sectoral GVA and Employment • Agr: Slowly declining and remain the main source of employment • Industry: remain low and declining with increasing empl share. Hence decreasing productivity • Services: relatively high and increasing Agriculture Industry Services 60 30 20 50 45 50 Employment in agriculture (% to total employment) 55 19 45 45 Share of agriculture gva (% to gdp at 2000 prices) 25 Share of agriculture gva (% to gdp at 2000 prices) Employment in agriculture (% to total employment) Employment in agriculture (% to total employment) 18 40 40 40 50 Share of agriculture gva (% to gdp at 2000 prices) 17 35 20 35 45 16 30 35 30 40 15 15 25 25 35 14 20 30 20 Employment 10 Employment Employment 13 15 15 Agri GVA Ind GVA 30 Svc GVA 12 10 25 10 5 25 5 11 5 20 0 20 0 10 0 19 … 19 … 20 … 20 … 20 … 20 … 20 … 20 … 20 … 20 … 20 … 20 … 20 … 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: World Development Indicator Online

Trade and Employment • Weak link between Trade and Employment 200 12 180 10 160 140 8 (unemployment rate, %) 120 (Index, %) 100 6 80 4 60 Export Volume Index Import Volume Index Unemployment rate 40 2 20 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: World Development Indicator Online

Labor Market Dynamics Stylized facts of labor market in Indonesia • Working age (15+) population accounts for 172 million in 2010, 80 180 grew by 40m during 1993-2010. 160 70 140 60 • Labor force participation rate 120 50 Mn workers was relatively stable at 66-68% Percent 100 40 • 80 Unemployment rate is relatively 30 60 low and stable. 20 40 • Wage earners remain lower vs. 10 20 - - pre-AFC level as Self employed 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 still dominant. Labor force participation rate Unemployment Rate Employee rate Participation, age 15+

Employment by sector and education Employment Rates by Sector, 1993-2009 (%) • Agriculture remains 60.0 50.0 dominant, followed by 40.0 services and manufacturing Percent 30.0 20.0 industry. 10.0 • Higher among male and less - 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 educated groups. Agriculture Manufacture Services Source: Calculated from Sakernas Workers by Education Level, 1993-2009 (%) 45.0 40.0 35.0 30.0 25.0 Percent 20.0 15.0 10.0 5.0 0.0 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Less than primary school Primary school Junior secondary Senior secondary Tertiary Source: Calculated from Sakernas

Underemployment Underemployment Rates by Working Hours, 1993-2009 (%) • Underemployment is 60 50 massive. 40 Percent • Mostly in rural and among 30 20 woman. 10 • Rural-urban gap remains 0 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 the same, while women- Less than 35 hours Less than 40 hours Source: Calculated from Sakernas men gap narrows due to Underemployment Rates by Residence, 1993-2010 (%) declining 60 underemployment among 50 women. 40 Percent 30 20 10 0 1993 1994 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Urban Rural Total Source: Calculated from Sakernas

Employment rate in formal and informal and by sector Formal Informal 90.0 100.0 90.0 80.0 80.0 70.0 70.0 60.0 60.0 Percent Percent 50.0 50.0 40.0 40.0 30.0 30.0 20.0 20.0 10.0 10.0 - 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 - 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 AFC GFC AFC GFC Agriculture Manufacture Agriculture Manufacture Services Total Services Total Source: Staff estimates using data from BPS (various years), SAKERNAS.

Informal Employment Formal and Informal Employment Rates, 1993-2009 (%) • Relatively widespread and 70 tends to increase. 60 • Higher in rural and among 50 women. 40 Percent 30 • Gender gap narrowing but 20 Informal Formal not between rural and 10 urban. 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Calculated from Sakernas Informal Employment by Gender, 1993-2009 (%) Informal Employment by Residence, 1993-2009 (%) 90.0 80 80.0 70 70.0 60 60.0 50 50.0 Percent Percent 40 40.0 30 30.0 20.0 20 10.0 10 - 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Urban Rural Total Male Female Total Source: Calculated from Sakernas

Wage: Nominal and Real Nominal and Real Wages, 1993-2009 (%) • Real Wage is stagnant. 1400 • Women earn less and the 1200 1000 gender gap remains. 800 ('000 Rp) 600 • Service sector is the highest, 400 followed by industry and 200 0 agriculture sectors. 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Nominal wages Real wages Source: Calculated from Sakernas. Note: for employee only. Real Monthly Wage by Sector, 1993-2009 (000Rp) Real Monthly Wage by Gender, 1993-2009 (000Rp) 350 350 300 300 250 250 200 200 ('000 Rp) ('000 Rp) 150 150 100 100 50 50 0 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Male Female Total Agriculture Manufacture Services Total Source: Calculated from Sakernas

Monthly wage of employee by sector (000) Nominal wage rate Real wage rate (CPI deflator) 350 1,600 1,400 300 1,200 250 1,000 200 '000 '000 800 150 600 100 400 50 200 - - 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 AFC GFC AFC GFC Agriculture Manufacture Agriculture Manufacture Services Total Services Total Source: Staff estimates using data from BPS (various years), SAKERNAS.

Merchandise trade (% of GDP) • Low trade-led growth • Relatively flat, lack of a big improvement 250 200 Merchandise trade (% of gdp) 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Brunei Darussalam Cambodia Indonesia Lao PDR Malaysia Philippines Source: ADB Key Indicators 2012

VOLUME INDEX (2000=100) • Exports: relatively flat • Imports: tend to increase but small Export Import 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Brunei Darussalam Cambodia Brunei Darussalam Cambodia Indonesia Lao PDR Indonesia Lao PDR Malaysia Myanmar Malaysia Myanmar Philippines Thailand Source: World Development Indicator Online

Tariff rates • Already low and decreasing Tariff rate, applied, simple mean (%) 9 8 7 6 Simple mean, % 5 all products 4 manufactured products 3 primary products 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2009 2010 Source: World Development Indicator Online

Indonesia: Destination of merchandise goods, 2011 Exports Japan 16.57 China, People's Rep. of 11.27 United States 8.11 Singapore 9.06 Korea, Rep. of 8.05 India 6.55 Malaysia 5.40 • Limited destinations Australia 2.74 • Traditional markets or trading partners Thailand 2.90 Netherlands 2.52 Source: Key Indicators for Asia and the Pacific 2012

Indonesia: Origin of Imports, 2011 Imports Singapore 14.63 China, People's Rep. of 14.77 Japan 10.95 Malaysia 5.86 United States 6.11 Korea, Rep. of 7.33 Thailand 5.86 • Limited sources Saudi Arabia 3.06 • Traditional trading partners Australia 2.92 India 2.44 Source: Key Indicators for Asia and the Pacific 2012

Production trade networks: importance of global supply chains • Not at the inner circle of GTN • Relatively weak trade connections All industries Source: Ferrarini (2011)