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Growth, Poverty and Labor Market Rigidity in Indonesia: A General Equilibrium Investigation

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Author Info

  • Arief Anshory Yusuf

    () (Department of Economics, Padjadjaran University)

  • Ahmad Komarulzaman

    () (Department of Economics, Padjadjaran University)

  • Muhammad Purnagunawan

    () (Department of Economics, Padjadjaran University)

  • Budy P. Resosudarmo

    () (Australian National University)

Abstract

In this paper, we argue that the intensification of capital use and an acceleration of real wage growth can be the main culprits of the “jobless growth” in Indonesian manufacturing sector for the period of 1999-2008, a period of recovery from the Asian Crisis. This can also endanger the poverty reduction aspiration during the same period. We simulate the situation using a Computable General Equilibrium model and find that the effect of the increased capital utilization and the acceleration of real wage growth are equally important in explaining the jobless-growth phenomenon. Increased capital utilization help the economy recover and reduces poverty but when constrained with the increasing real wage, the recovery and the rate of poverty reduction is slower. The situation is in favor of the non-poor because first, the poor is mainly dependent on non-formal employment, hence do not benefit from the increased real wage; second, the slower expansion of the manufacturing sector affect the rest of the economy affecting the real wage of the labor employed in other sectors, such as unskilled non-formal labor and agricultural labor upon which the poor are heavily dependent; and third, the income rise from increased capital utilization mainly benefits the urban non-poor.

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File URL: http://lp3e.fe.unpad.ac.id/wopeds/201304.pdf
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Bibliographic Info

Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 201304.

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Length: 37 pages
Date of creation: Jan 2013
Date of revision: Jan 2013
Handle: RePEc:unp:wpaper:201304

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Keywords: Growth; poverty; labor market; general equilibrium; Indonesia;

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References

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  1. Yusuf, Arief Anshory, 2006. "Constructing Indonesian Social Accounting Matrix for Distributional Analysis in the CGE Modelling Framework," MPRA Paper 1730, University Library of Munich, Germany.
  2. Chris Manning & Kurnya Roesad, 2006. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 42(2), pages 143-170.
  3. Hadi Soesastro & M. Chatib Basri, 1998. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 34(1), pages 3-54.
  4. François Bourguignon & Maurizio Bussolo & John Cockburn, 2010. "Guest Editorial - Macro-micro analytics: background, motivation, advantages and remaining challenges," International Journal of Microsimulation, Interational Microsimulation Association, vol. 3(1), pages 1-7.
  5. Alisjahbana, Armida & Yusuf, Arief Anshory, 2003. "Assessing Indonesia's sustainable development: long-run trend, impact of the crisis, and adjustment during the recovery period," MPRA Paper 1736, University Library of Munich, Germany.
  6. Arianto Patunru & Christian von Luebke, 2010. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 46(1), pages 7-31.
  7. Peter Warr & Arief Anshory Yusuf, 2011. "Reducing Indonesia’s deforestation‐based greenhouse gas emissions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(3), pages 297-321, 07.
  8. Arief Anshory Yusuf, 2008. "INDONESIA-E3: An Indonesian Applied General Equilibrium Model for Analyzing the Economy, Equity, and the Environment," Working Papers in Economics and Development Studies (WoPEDS) 200804, Department of Economics, Padjadjaran University, revised Sep 2008.
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