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Indonesia's workers may 'grow old before they grow rich'

Publication Date : 10-05-2014

 

Workers in Indonesia and several other regional countries are in danger of "growing old before they grow rich", as migration to urban centres is taking place at a faster clip than formal employment and wages, the World Bank has said.

Indonesia is also seeing more capital-intensive investments to replace labour-intensive work, raising the possibility that unskilled workers will be trapped in low-productivity jobs that pay low wages, it warned at the launch of its report, titled East Asia Pacific At Work: Employment, Enterprise and Well-being, on Thursday.

The low availability of formal jobs that provide training is directly linked to lower productivity as many workers are forced to enter the informal work sector, said the report's author and lead economist, Dr Truman Packard.

"This means that the economies (including Thailand and China) face the risk of growing old before they grow rich... and having a workforce that is older is going to bear down this region faster than it has gone down on others," he added.

Indonesia has been touted as an investment honeypot after posting average economic growth of above 6 per cent between 2010 and last year. But last quarter, its economy expanded by 5.21 per cent - its slowest quarterly growth since 2009.

Indonesia's central bank revised its forecast for this year's economic growth to between 5.1 and 5.5 per cent, from between 5.5 and 5.9 per cent, citing dampened domestic consumption, low prices of export commodities and the impact of a mineral-ore ban.

The vulnerability of the economy is also beginning to show up, due to slow expansion of infrastructure such as roads and ports, and restrictive policies such as the mineral-ore ban, economists say.

This adds to the country's inefficiencies caused by the lack of good education and lower levels of labour productivity.

Indonesia jumped 12 places to rank 38th last year in the World Economic Forum's Global Competitiveness Index, largely due to more infrastructure spending.

But businessmen say much more needed to be done and called for urgent action.

"It is difficult to deal with the government when we have bureaucrats with their own interests. The solution is not just to listen any more, but to take action," said Chris Kanter, deputy chairman of Indonesian Employers Association (Apindo).

A McKinsey report in late 2012 on unleashing the economic potential of Indonesia predicted that if the government does not increase its spending on education, there could be a gap of US$8 billion a year by 2030 in total expected demand for education.

"It is not the volume of investment we criticise, but where it is going," said Dr Packard. The World Bank urged Indonesia to invest more in early primary education and to accelerate skills training, if it is to avoid being left behind as it faces another challenge when the Asean Economic Community (AEC) kicks in.

Dr Ndiame Diop, the World Bank's lead economist for Indonesia, said: "With (AEC) beginning next year, this calls for accelerating skills development and skills supply in the country in order for Indonesia to become more competitive."

Labour leaders admit that most workers are more interested in getting higher pay than in getting training.

"People are not so sophisticated. For them, the more important thing is to talk about salary," said Rekson Silaban, a Jakarta-based leader of the Indonesian Confederation of Indonesian Workers Welfare Unions.

 

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