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Industrialization, globalization, and labor market regime in Indonesia

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  • Dionisius Narjoko
  • Chandra Tri Putra

Abstract

This paper examines globalization, industrialization, and labor markets in Indonesia using a case study of manufacturing. It attempts to answer the question of how changes in the labor market after the 1997–1998 Asian Financial Crisis affected industrialization and labor market performance. The paper generates three main findings. First, the responsiveness of output to employment and wages to employment declined substantially over the period 1996–2006 but recovered in 2009. The decline could be a consequence of the implementation of rigid labor laws since 2003. The recovery in 2009 may reflect firms’ adjustment period to the new environment or simply that firms found different opportunities. Second, exporters generally show higher employment elasticity than non-exporters. However, since the implementation of the labor law, exporters tend to retain employment more than non-exporters when wages rise. Third, exporters began substituting labor with machinery as wages started rising.

Suggested Citation

  • Dionisius Narjoko & Chandra Tri Putra, 2015. "Industrialization, globalization, and labor market regime in Indonesia," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 20(1), pages 57-76, January.
    • Handle: RePEc:taf:rjapxx:v:20:y:2015:i:1:p:57-76
    DOI: 10.1080/13547860.2014.974321
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    References listed on IDEAS

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    1. Manning,Chris, 1998. "Indonesian Labour in Transition," Cambridge Books, Cambridge University Press, number 9780521594127.
    2. Robert E. Lipsey, 2001. "Foreign Direct Investors in Three Financial Crises," NBER Working Papers 8084, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Mohammad Zulfan Tadjoeddin & Ilmiawan Auwalin & Anis Chowdhury, 2016. "Revitalizing Indonesia’s manufacturing: the productivity conundrum," Departmental Working Papers 2016-20, The Australian National University, Arndt-Corden Department of Economics.

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