Aug 13, 2020 Last Updated 3:42 AM, Aug 7, 2020

The employment crisis

Published: Sep 29, 2007

Well before the political situation worsened in May, the economic crisis had begun to have a major impact on the lives of many Indonesian workers.

Unemployment rates have risen to an all time high, probably doubling to around 15-20% in the major cities and towns, although there are no official statistics on the exact magnitude of the shifts. Layoffs have hit the construction industry most severely, with as many as a quarter to a third of its 5-6 million workers loosing their jobs. The effect on unemployment would have been much worse had many not crowded into informal sector jobs, where the new entrants forced down earnings to much lower than before.

Real wages (money wages adjusted for inflation) of most workers still in their primary jobs have fallen by at least 20-30%. Less or no overtime, shorter working hours or temporary layoffs on half pay or less (dirumahkan) is a common story among industrial and service sector workers throughout the country.

Why no protest?

Why then is it the students and not Indonesian workers who are in the forefront of demonstrations for political and economic reform? Two factors seem to be most important. One, most workers, especially in construction, still have their main family links in villages and small towns. They simply cannot afford to remain, unemployed, in the major cities, where organised protest is more likely. Many held their jobs until the end of the fasting month in late January, then returned to their home villages with the simple message from employers to wait until conditions improve.

Most are still waiting. They have been forced to seek work wherever possible, in small family businesses or as itinerant, casual labourers. They are suffering, but finding the next meal is paramount. They are dispersed and unable to organise.

Second, effective labour opposition, which might have been expected to take a lead, has been decimated over the past four years. There was the attack on the leadership of the independent union SBSI in the wake of the 1994 Medan riots, and then action against the PRD after the July 1996 demonstrations. Despite outwardly pro-worker and large minimum wage increases, the government has maintained tight control over worker organisations.

SPSI, the official pro-government labour union, has little following among the mass of wage workers. It did make uncharacteristically strong representations for employer restraint in layoffs during a tripartite summit meeting last November. But SPSI is more likely to act as an agent of control rather than reform if the political struggle intensifies.


What are the prospects for worker welfare and action in the next 6- 12 months? There is little likelihood of significant improvement in employment in the medium-term. Continuing political uncertainty, and the exchange rate and financial crisis, have brought new investment to a virtual halt. The May anti-Chinese riots in Medan, and widespread action on campuses across the country, will almost certainly prolong the stay on any prospect of a semblance of recovery for another 3-6 months.

Job prospects for the one million school leavers last year and a further million this June-July remain bleak. Even with a return to some degree of economic stability over the next 3-6 months, few new wage jobs are likely to appear before 1999. Unlike retrenched workers, these school and university graduates, concentrated in the cities and towns, are a potential force for political change.

New government public works initiatives, already underway throughout Java and in the worst drought affected areas, can be expected to provide some cash injections into local economies. The special programs envisaged through the 1998/ 99 budget (amounting to around Rp 1.5 trillion, about AU$250 million) will probably provide part-time jobs for around half a million people.

Substantial World Bank and Asia Development Bank emergency aid may well assist in job creation for another one million workers by 1999. But, while critical for immediate basic needs, these will be holding operations only and have little net impact on the total employment front.

A change in the political leadership now appears the only alternative to setting the stage for some recovery on the jobs front. The longer the political turmoil, the less likely that any improvement in investment and employment will occur even in the first half of 1999. Real incomes are eroding as inflation continues to run at 5-10% on a monthly basis fueled by the weak rupiah. Economic growth did bring more jobs and higher wages for many Indonesians over 30 years. This was one of the major factors underlying political stability. Defenders of the Suharto government's economic record and of the liberalisation in the 1980s þ including this writer - pointed to welfare and employment gains as a major achievement of the regime, despite the poor record on human rights and political freedoms. These grounds for defence of the regime no longer apply.

Ironically, it seems more likely that many will remember the president for the jobs his government destroyed, rather than the tens of millions it created through public works, improved education and labour-intensive exports.

Chris Manning is an economist with the Indonesia Project at the Australian National University.

Inside Indonesia 55: Jul-Sep 1998

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