Creating Better-Paid Jobs Thanks to Regional Trade Agreements? Evidence from Indonesia

The creation of stable, well-paid jobs by private firms is a key issue for low- and middle-income countries (LMICs). It is not clear whether further trade integration would help to achieve this goal. In this study, we examine the impact of the ASEAN-China Free Trade Agreement (ACFTA) on the likelihood of becoming a wage worker in Indonesia, which serves as a proxy for better paid employment in the Indonesian context. Our findings suggest that reductions in import and export tariffs did not, on average, increase the probability of becoming a wage worker, except among those with more than a primary education (25% of the working-age population). The estimated impact on various subgroups and sectors appears to vary considerably across regions, being stronger in Java, the most densely populated and economically dynamic island. In line with these limited average effects at worker level, we also find no significant changes in employment or value added in large and medium-sized manufacturing firms, which are the main providers of salaried jobs. Our results suggest that, if anything, the ACFTA had a regressive impact on access to better-paying jobs.