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Structural change and formal sector employment growth in Indonesia

Author

Listed:
  • Devanto Shasta Pratomo
  • Chris Manning

Abstract

The study provides evidence on the transition and growth of the formal sector in the Indonesian economy. It utilizes data from the National Labour Force Survey (SAKERNAS) for tracking the previous work status of workers as formal or informal workers. The study also examines the implication of formalization of employment for the different rates of earnings of formal sector workers, given their human capital characteristics and different industries of employment. The study finds that the growth of employment in the formal sector is mainly the result of entry of younger and better educated new entrants. Although there is some mobility from the informal to the formal sector, the results show that individuals who were previously working in the informal sector are less likely to move into formal sector. In terms of earnings, there is evidence of scarring effects: individuals who are initially in the formal sector earn more than individuals who are initially in the informal sector.

Suggested Citation

  • Devanto Shasta Pratomo & Chris Manning, 2020. "Structural change and formal sector employment growth in Indonesia," Departmental Working Papers 2020-15, The Australian National University, Arndt-Corden Department of Economics.
    • Handle: RePEc:pas:papers:2020-15
    as

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    File URL: https://acde.crawford.anu.edu.au/sites/default/files/publication/acde_crawford_anu_edu_au/2020-11/acde_td_devanto_manning_2020_15.pdf
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    Citations

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    Cited by:

    1. Christine ABLAZA & Mark WESTERN & Wojtek TOMASZEWSKI, 2021. "Good jobs and bad jobs for Indonesia's informal workers," International Labour Review, International Labour Organization, vol. 160(1), pages 143-168, March.

    More about this item

    Keywords

    informal sector; job mobility; human capital; earnings differentials;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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