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The Heterogeneous Impacts of Digital Transformation and Investment on Indonesia's Labour Market

Author

Listed:
  • Maria Monica WIHARDJA

    (ISEAS-Yusof Ishak Institute)

  • Abror Tegar PRADANA

    (World Bank)

  • Putu Sanjiwacika WIBISANA

    (World Bank)

  • Arya SWARNATA

    (Australia National University)

Abstract

In this paper, we provide a nuanced and detailed analysis of the effects on the labour market of digital transformation and investment in Indonesia. This paper is divided into three strands of work, which can be read independently or together. In the first strand, we discuss the impact of digital transformation on rising wage inequality using the approach of skill-biased technological change. Building on the work by Jacoby et al. (2021), we explore channels that may attenuate the skill-biased technological change. The second strand looks at rising wage inequality arising from routine-biased technological change, which theorises that it is those performing routine tasks in their jobs who are left behind as automation emerges, not necessarily the less-educated workers. The third strand looks at the impacts of investment in the digital sectors on the wages and employment of various types of workers. The overall narrative is clear: workers who are more advantaged to begin with, such as high-skilled and bettereducated workers, benefit more from digital transformation and digital investment than low- and midskilled and lower-educated workers, who are more likely to lose out. There are, however, cases where high-skilled workers may also be adversely affected. This is the case in Indonesia for the period until 2019 (2016 for the study on the effects of digital investment). To address the digital divide potentially arising from skill-biased technological change, routine-biased technological change, and digital investment, we recommend that policies to accelerate Indonesia’s digital transformation and liberalise its digital investment are accompanied by policies on education, the labour market, investment, trade (including service trade), and competition. Our policy recommendations shed light on the findings in this report while considering that digital technologies will continuously evolve that may have different impacts on the labour market.

Suggested Citation

  • Maria Monica WIHARDJA & Abror Tegar PRADANA & Putu Sanjiwacika WIBISANA & Arya SWARNATA, 2024. "The Heterogeneous Impacts of Digital Transformation and Investment on Indonesia's Labour Market," Working Papers DP-2024-17, Economic Research Institute for ASEAN and East Asia (ERIA).
    • Handle: RePEc:era:wpaper:dp-2024-17
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    References listed on IDEAS

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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