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The benefits of growth for Indonesian Workers

Author

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  • Agrawal, Nisha

Abstract

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.

Suggested Citation

  • Agrawal, Nisha, 1996. "The benefits of growth for Indonesian Workers," Policy Research Working Paper Series 1637, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1637
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Martín Rama, 2001. "The Consequences of Doubling the Minimum Wage: The Case of Indonesia," ILR Review, Cornell University, ILR School, vol. 54(4), pages 864-881, July.
    4. Grootaert, Christiaan & Kanbur, Ravi, 1995. "Child labor : a review," Policy Research Working Paper Series 1454, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Martín Rama, 2001. "The Consequences of Doubling the Minimum Wage: The Case of Indonesia," ILR Review, Cornell University, ILR School, vol. 54(4), pages 864-881, July.
    2. Belser, Patrick, 2000. "Vietnam - on the road to labor-intensive growth ?," Policy Research Working Paper Series 2389, The World Bank.
    3. Suryahadi, A. & Chen, P. & Tyers, R., 1999. "Openness, Technological Change and Labor Demand in Pre-Crisis Indonesia," ANU Working Papers in Economics and Econometrics 1999-377, Australian National University, College of Business and Economics, School of Economics.
    4. Asep Suryahadi, & Wenefrida Widyanti & Daniel Perwira & Sudarno Sumarto, 2001. "The Impact of Minimum Wage Policy on Wages and Employment in Developing Countries: The Case of Indonesia," Economics Study Area Working Papers 38, East-West Center, Economics Study Area.

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