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The benefits of growth for Indonesian Workers

  • Agrawal, Nisha
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    Indonesia's adopted development model has proved to be the most successful in alleviating poverty and benefiting workers in developing countries. The government's development efforts focused on agriculture, education, and transport infrastructure. It emphasized providing productive employment opportunities and gradually improving the labor quality through education and training. The wage, employment, and income growth rates were left to market forces. Although the rapid growth of labor-intensive manufacturing has led to more jobs and higher wages benefiting workers, workers employed in these industries have expressed growing dissatisfaction. They complain about problems of child labor, the denial of centrally mandated wages and benefits to workers, poor working conditions, and the abuse of young female workers. The government has tried to improve worker's wages and working conditions by centrally mandating higher labor standards, relying principally on minimum wages. Enforcement has improved and, despite low compliance, minimum wages are beginning to bite. Indonesians are debating whether they need labor intensive industries and whether it is a mistake to base Indonesia's growth on cheap labor. They argue that if labor is more expensive, manufacturers must substitute some capital for labor. However, if labor-intensive industries are rejected, the capacity of the economy to absorb plentiful workers will be reduced. The main alternatives are to push up wages now, or to let wages be determined by market forces and strengthen institutions that could improve working conditions, such as labor unions. The author recommends maintaining flexible labor markets and allowing market forces to set the pace of change, while strengthening labor unions.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1637.

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    Date of creation: 31 Aug 1996
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    Handle: RePEc:wbk:wbrwps:1637
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    1. Rama, Martin, 1996. "The consequences of doubling the minimum wage : the case of Indonesia," Policy Research Working Paper Series 1643, The World Bank.
    2. Grootaert, Christiaan & Kanbur, Ravi, 1995. "Child labor : a review," Policy Research Working Paper Series 1454, The World Bank.
    3. Behrman, Jere R & Deolalikar, Anil B, 1995. "Are There Differential Returns to Schooling by Gender? The Case of Indonesian Labour Markets," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 97-117, February.
    4. Mason, Andrew D. & Baptist, Jacqueline, 1996. "How important are labor markets to the welfare of the poor in Indonesia?," Policy Research Working Paper Series 1665, The World Bank.
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