Globalization and Wage Inequality in Indonesia: A CGE Analysis

A multi-region computable general equilibrium model is developed in this study to examine Indonesia's trade regime and its labor markets. This model enables the labor market impacts of shocks to trade policy, the capital stock, and technology to be examined individually as well as collectively. The results suggest that the dominant factor in affecting wage inequality in Indonesia is total factor productivity growth. This strong role of productivity gains is distinctive, considering the prevailing view that East Asia's strong growth was driven primarily by capital accumulation. The model is also used to examine possible policy measures to reduce growth-induced wage inequality, including a return to some trade protection and the use of domestic taxes and subsidies. All are found to be costly to the economy as a whole and most to unskilled workers. The last price of analysis addresses the Asian financial crisis and its effects on Indonesian labor markets. The effects of contractionary shocks prove the opposite of the growth-related shocks of the previous decade. All workers are made worse off, the unskilled less so. Raising the elasticity of skilled labor supply through education, training, and migration is seen as the best approach to addressing the inevitable wage inequality increase that will accompany Indonesia's eventual recover.

The Contrasting Role of Ability and Poverty on Education Attainment: Evidence From Indonesia

This study measures the relative role of poverty and scholastic ability on education attainment in developing countries, where a substantial portion of the population still live in poverty and poor people are markedly credit constrained. different from most studies in developing countries, this paper uses a multiple-wave and long-spanning panel dataset that follows a cohort of children beginning from primary school until they are well over schooling age. we find that poverty has a statistically-significant and negative effect on junior high attainment, while it has a negligible effect on senior high completion. in contrast, scholastic ability plays no role in ensuring junior high completion but is crucial in increasing a child\u27s chance to graduate from senior high school. in addition, we find that high- and low-ability poor children have a similarly low chance of finishing junior high school. based on our findings, we formulate several policy recommendations to increase education attainment. keywords: poverty, scholastic ability, education, Indonesia jel classifications: i21, 01

The Chronic Poor, the Transient Poor, and the Vulnerable in Indonesia Before and After the Crisis

Using cross-section data from household surveys, we estimate several categories of household poverty and vulnerability in Indonesia by combining the available information on current consumption levels, estimates of vulnerability to poverty, and estimates of expected consumption levels. the results indicate that the level of vulnerability to poverty among Indonesian households after the crisis unambiguously increased from pre-crisis levels. furthermore, not only did the poverty rate in Indonesia increase significantly because of the crisis, but also much of this increase was due to an increase in chronic poverty. likewise, the number of households that have high vulnerability to poverty has almost tripled. as a result, the total number of households in the vulnerable category has jumped from 18 percent of the population in 1996 to more than one third of the population in 1999. *we thank shubham chauduri and john maxwell for valuable comments and suggestions and daniel perwira and wenefrida widyanti for excellent research assistance. we are grateful to statistics Indonesia (bps) for providing access to the data

The Measurement and Trends of Unemployment in Indonesia : The Issue of Discouraged Workers

This study provides an overview of the concepts used to measure unemployment in Indonesia and their consequences for the measured unemployment trends. One finding shows that BPSs decision in 2001 to relax the definition of labor force by including discouraged workers has resulted in an artificially high open unemployment rate and disguises the actual decline in traditionally-measured open unemployment rates post-crisis. Another finding indicates that discouraged workers in Indonesia are not confined only to the poor and those who are denied access to the proper job market. We recommend that, if Indonesia still wants to utilize a broader definition of the labor force, the measurement of open unemployment should adhere to the ILOs recommendation of only including those discouraged workers who are still willing to work. The discouraged workers who are unwilling to work should be left in the out of labor force category.discouraged workers, open unemployment, measurement, Indonesia

Safety nets and safety ropes - who benefited from two Indonesian crisis programs - the"poor"or the"shocked"?

Imagine several mountain climbers, scaling a cliff face, who want protection from falling. One way to protect them would be to place a net at the bottom of the cliff to catch any climber just before he hits the ground. Another would be to provide a rope, and a set of movable devices that can be attached to the cliff; as the climbers scale the cliff, they attach the rope at higher levels, so that if a climber falls, he falls only by the length of the rope. In this paper, the :safety net"guarantees against a fall past an absolute level; the"safety rope"guarantees against a fall of more than a given distance. The safety net is concerned with an increase in poverty; the safety rope mitigates risk through social insurance, or social protection. Calculations of the benefit incidence, and targeting effectiveness of safety net programs, typically examine only the relationship between a household's current expenditures, and program participation. But in programs that respond to an economic shock, or intend to mitigate household risk, it is not only the current level of expenditures that matters, but also changes in expenditures. Safety net programs may intend to benefit only the currently poor; programs to mitigate shocks ("safety rope"programs) may intend to provide transfers to those whose incomes have fallen, even if they have not fallen below an absolute poverty threshold. The authors examine the targeting performance of tow programs, created to respond to the social impacts of Indonesia's crisis. They find strong evidence that one program, subsidized sales of rice targeted to the permanently poor, was only weakly related to the shock in consumption spending. A job creation program was much more responsive to changes in spending. A Household that started in the third quintile in expenditures in 1997, and fell to the lowest quintile between 1997, and 1998, was four times as likely to have participated in the job creation program as a household starting in the third quintile in 1997, but experiencing a positive shock. But the household experiencing a negative shock, was only fifty percent more likely to have received subsidized rice, than a household experiencing a positive shock.Poverty Monitoring&Analysis,Health Economics&Finance,Decentralization,ICT Policy and Strategies,Environmental Economics&Policies,Poverty Monitoring&Analysis,Health Economics&Finance,ICT Policy and Strategies,Environmental Economics&Policies,Housing&Human Habitats

What Happened to Child Labor in Indonesia during the Economic Crisis : The Trade-off between School and Work

Although in general less prevalent than other developing countries at similar stage of development, the problem of child labor in Indonesia is significant. Like in other countries, this study finds that there is a strong link between the child labor phenomenon and poverty. The profile of child labor largely mirrors the profile of poverty. Furthermore, poverty is found as an important determinant of working for children. However, working does not always completely eliminate a childs opportunity to obtain formal education. In fact, children from poor households can still go to school by undertaking part-time work to pay for their education, implying that banning working for these children may force them to drop out of schools instead. Since the phenomenon of child labor is strongly associated with and determined by poverty, the most effective policy for eliminating child labor is through poverty alleviation. Other policies that can foster the rate of reduction in child labor are to make it easier for children from poor families to access education and to increase the opportunity cost of working by improving the quality of education to increase the rate of return to education.child, labour

The Impact of Private Sector Growth on Poverty Reduction: Evidence From Indonesia

This paper assesses the effect of public and private sector growth on poverty in Indonesia. we use fixed capital formation growth as the proxy for the private sector and growth in government spending as the indicator of the public sector. we find that growth in both sectors significantly reduces poverty; moreover, they have the same elasticity. therefore, growth in both public and private sector spending will reduce poverty twice as fast as just relying on public spending. the implication is that it is crucial for governments to improve the business climate in their countries so that the private sector will be able to flourish and in the end expedite poverty reduction. keywords: private sector; investment; government expenditure; poverty reduction; Indonesia jel classification: h50, i32, o4