This thesis analyzes labor market issues in Indonesia. The first chapter analyzes the insurance role of self-employment during the Asian Financial Crisis. Di erence in di erence estimation is used to estimate the e ect of having self-employed business before the crisis on household consumption and labor supply during the crisis. I find that households with self-employed business before the crisis could increase labor supply by a much lesser amount to maintain the same level of consumption compared with households without self-employed business before the crisis. The second chapter looks at the e ect of women's work hours on their intra-household bargaining power. I utilize direct information on household decision-making from the Indonesian Family Life Survey to construct direct measures of women's intra-household bargaining power. I also use regional price increase during the Asian Financial Crisis as an instrumental variable that positively a ects women's work hours but does not a ect women's bargaining power directly. I find evidence for a positive relationship between women's work hours and their intra-household bargaining power. The third chapter compares the Indonesian Family Life Survey and the Indonesian Labor Force Survey and tries to reconcile the inconsistencies between the two surveys in employment measures. After documenting and testing potential causes of the inconsistencies, I find that the inconsistencies are by large not reconcilable. The design of questions on working status in the survey and the treatment of unpaid family work, however, does seem to be a factor causing inconsistencies between the two surveys.
The greatest productive asset for most people in the world is their own labor. Many poor people employ their labor in subsistence agriculture or in informal jobs. A direct route to lift these people out of poverty is to move them into formal sector jobs which provide higher wages and more benefits. It is also important for poverty alleviation to improve the wages and benefits provided to people already working in formal sector jobs. The more people that can be employed in formal sectors jobs with higher wages, the fewer people there will be living in poverty. My research deals with issues in this arena. The first chapter investigates whether firms behave monopsonistically, which would result in lower wages and lower employment than a competitive outcome would. The results show that about 60% of the manufacturing firms do behave monopsonistically in the labor market. The second chapter analyzes the impact of increased firing restrictions on the behavior of firms, and finds that labor costs increase, output decreases, and the capital-labor ratio increases. The third chapter looks how big of an impact the monopsonistic behavior of firms has on the poverty rate in Indonesia, and finds that poverty would be 8.5% to 23% lower if firms behaved competitively in the labor market.
In Indonesia, the past two decades have been a time of great progress but also massive transformations and abrupt setbacks. In this context, this book reviews the main characteristics of - and trends in - demand for skills in Indonesia. It seeks to document the existence of a possible skills mismatch between employer demands and the available supply, the contribution of the education and training sector to this mismatch, and possible measures to improve the education and training system's responsiveness to what the labor market and the economy need. In today's job market in Indonesia, there appears to be a premium on theoretical and practical knowledge of the job. While skills do not appear to be yet among the most important constraints for the economy, the situation is different for larger more export-oriented manufacturing firms. Subjective assessments of difficulties of matching needs with available skills provide evidence that skills are becoming an issue overall in Indonesia. The widest gaps across professional profiles are for English and computer skills followed by thinking and behavioral skills. Theoretical and practical knowledge of the job are also considered to be weak. There are important gaps in creativity, computing and some technical skills for young workers. English remains the largest gap. Five general skill related priorities can be highlighted for Indonesia. First, the country needs to improve skill measurement to get a fuller understanding of skill needs and gaps. Second, it is urgent for Indonesia to address the still unsatisfactory quality and relevance of its formal education, including higher education. Third, the country needs to set-up multiple pathways for skill development. Fourth, the country needs to develop an integrated approach to tackle skill development for youth. Fifth, Indonesia should also tackle labor market constraints which affect the skill matching process.
This thesis explores three topics on migration, labor market and development economics. Chapter 2 provide analysis on the impacts of rural-urban migration on expenditure patterns. Using two waves of data from the Indonesian Family Life Survey (IFLS) 2000 and 2007, this study applies household demand analysis to examine rural households' expenditure patterns. A system of expenditure equations is estimated jointly using seemingly unrelated regression (SUR) estimation. Three key findings emerge. First, migration has a statistically significant effect on reshaping Indonesian rural households' expenditure on food and non-food goods, and particularly on utility and transportation, durable goods, and education. Second, households with migrants spend more at the margin on meat and vegetables compared with households without migrants. Third, households with migrants spend more at the margin on housing as compared with households without migrants. Chapter 3 attempts to investigate the effect on Indonesia men's health of having left school during the economic crisis 1997-2000. Two empirical patterns motivate this research. First, leaving school during an economic crisis appears to have persistent and negative career effects on workers. Second, labour market trends and health outcomes are correlated. A quasi-experiment using provincial unemployment rate at time of leaving school and the economic crisis period conducted to identify persistent health effects. Five health-risk criteria are examined: mental health, lung capacity, body mass index (BMI), blood pressure and smoking. Using data from the IFLS 2000 and 2007, this study applies a standard health production function to model health as a function of leaving school during economic crisis. Three key findings emerge. First, labour market conditions and school-leavers' health are negatively correlated. Second, men who left school during the 1997-2000 economic crisis have had worse mental health outcomes than men who left school before the economic crisis. Third, men who left school during the economic crisis display higher-risk health-related behaviour than their pre-crisis school leaving counterparts. Additional analysis suggests that the health effects may partially operate through labour market outcomes. The results suggest that men who leave school during economic downturn may have experience persistent poor labour market experiences with poor health as a result. Finally, Chapter 4 attempt to answer the question on what types of households are vulnerable to consumption changes when they are hit by natural disasters? This question is investigated using two-period data obtained in rural Indonesia, in 2000 and 2007 in relation to floods and earthquakes. Empirical results show that the sensitivity of consumption changes to idiosyncratic or aggregate shocks differs across households, depending on the characteristics of the households. The estimation shows significant negative effects of these disasters on households' consumption. The results also found that several factors play a significant role in explaining rural households' response to disaster shocks in terms of consumption changes. These factors include the number of household members, the household head's education level, the number of dependent household members, participation in non-farm business and land size owned or cultivated.
