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

Author

Listed:
  • Arief Anshory Yusuf

    () (Department of Economics, Padjadjaran University)

  • Ahmad Komarulzaman

    () (Department of Economics, Padjadjaran University)

  • Muhamad 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.

Suggested Citation

  • Arief Anshory Yusuf & Ahmad Komarulzaman & Muhamad Purnagunawan & Budy P. Resosudarmo, 2013. "Growth, Poverty and Labor Market Rigidity in Indonesia: A General Equilibrium Investigation," Working Papers in Economics and Development Studies (WoPEDS) 201304, Department of Economics, Padjadjaran University, revised Jan 2013.
  • Handle: RePEc:unp:wpaper:201304
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    File URL: http://ceds.feb.unpad.ac.id/wopeds/201304.pdf
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    References listed on IDEAS

    as
    1. Warr, Peter & Menon, Jayant & Yusuf, Arief Anshory, 2012. "Poverty impacts of natural resource revenues," Journal of Asian Economics, Elsevier, vol. 23(4), pages 442-453.
    2. Arief Anshory Yusuf, 2006. "Constructing Indonesian Social Accounting Matrix for Distributional Analysis in the CGE Modelling Framework," Working Papers in Economics and Development Studies (WoPEDS) 200604, Department of Economics, Padjadjaran University, revised Nov 2006.
    3. Chris Manning & Kurnya Roesad, 2006. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(2), pages 143-170.
    4. François Bourguignon & Maurizio Bussolo & John Cockburn, 2010. "Guest Editorial - Macro-micro analytics: background, motivation, advantages and remaining challenges," International Journal of Microsimulation, International Microsimulation Association, vol. 3(1), pages 1-7.
    5. Armida Alisjahbana & Arief Anshory Yusuf, 2003. "Assessing Indonesia's sustainable development: long-run trend, impact of the crisis, and adjustment during the recovery period," Working Papers in Economics and Development Studies (WoPEDS) 200306, Department of Economics, Padjadjaran University, revised Oct 2003.
    6. Warr, Peter & Yusuf, Arief Anshory, 2011. "Reducing Indonesia’s deforestation-based greenhouse gas emissions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 0(Issue 3), pages 1-25, September.
    7. 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.
    8. M. Chatib Basri & Arianto Patunru, 2006. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 42(3), pages 295-319.
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    Citations

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    Cited by:

    1. Arief Anshory Yusuf & Irlan Adiyatma Rum, 2013. "Living beyond $2 a day: How Indonesia has progressed," Working Papers in Economics and Development Studies (WoPEDS) 201313, Department of Economics, Padjadjaran University, revised Jul 2013.
    2. Arief Anshory Yusuf & Andy Sumner & Irlan Adiyatma Rum, 2014. "Twenty Years of Expenditure Inequality in Indonesia, 1993-2013," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 50(2), pages 243-254, August.
    3. 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.

    More about this item

    Keywords

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

    JEL classification:

    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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