By Christopher Manning and Devanto Pratomo
This study reviews the developments in Indonesia’s labour markets during the Joko “Jokowi” Widodo presidency. It is set in the context of changing employment, wages and productivity since the Asian Financial Crisis and under the previous (Yudhoyono) government. We argue that Jokowi’s approach as a former businessman — aided by his like-minded vice-president, Jusuf Kalla — together with macroeconomic developments, has been positive for employment and wages, although less so for labour productivity. Formal sector jobs have continued to grow rapidly and recover somewhat in manufacturing, while the downward trend in unemployment has been sustained. Reform of the minimum wage setting processes has not endeared the president to vocal union groups, but appears to have moderated minimum wage increases close to the main industrial centres. At the same time, a wider wage gap has emerged between
permanent and casual workers, which could have contributed to the rising inequality in the country. In an attempt to boost productivity, the current administration has put considerable effort into improving skills that are in demand. However, progress is likely to be slow mainly because of the low quality of basic schooling.