POLICY BRIEF ON “INCREASING SKILLS AND PRODUCTIVITY OF THE LABOR FORCE”
EMPLOYMENT POLICY FORUM / FORUM KEBIJAKAN KETENAGAKERJAAN
SESSION 6 ON 6 OCTOBER 2015
Indonesia has to strengthen the skill of the workers in line with the increased demand as well as current economic transformation. Although the new entrants of the labor force are getting more educated, yet they do not have the right skills, indicating skills mismatches. This makes it more difficult for employers to get skilled workers. But if firms need skilled employees, why can’t they provide training? One answer is that the perceived benefit of training may be lower than the cost for employers and/or for potential trainees. Also, market might be hindered from supplying good quality training due to asymmetric information, lack of incentives and/or access to credit.
GOI has adopted competency standards since 2003, but the establishment of BNSP (National Profession Certification Agency) has not led to the development of these standards. BNSP is an independent agency taking care of professional certification to all private LSP (Professional Certification Institution). The main goal of BNSP is to accelerate professional certification process in all industries. Today, only 30-40% of 170 industry associations in KADIN (Indonesian Chamber of Commerce and Industry) have developed competency-based training, most of which do not operate with adequate facilities. Furthermore, many competency standards fall behind current industry requirements, which may hinder Indonesian skilled workers from reaping the benefits of the ASEAN Economic Community (AEC). Even more worrisome, of all 8 professions with MRA, only tourism sector is ready with its complete competency standards.
The current system of training development is not functioning due to low involvement of the employers, fragmentation in funding among different ministries, inefficient financing, and lack of institutional structure at the provincial/district levels which result in uncoordinated supply of training at regional level. To overcome this, a blueprint for gradual and non-disrupted reform of training system has been prepared by Bappenas to meet the demand in the labor market. The blueprint consists of three pillars: competency standards, competency-based training, and certification. This reform will include two institutional changes: Skills Development Fund (SDF) and provincial level structures. Support to this reform will come from various ministries such as the Ministry of Finance, the Coordinating Ministry for Economic Affairs and the Ministry of Manpower, employers associations and labor unions.
Many companies are still reluctant to give competency standard training for their employees, because they anticipate a demand for higher salaries after getting certification and worry that trained employees could be poached by other companies. Thus, the government should provide incentives for training as a counterweight for these potential negative impacts. In the planned SDF reform, employers can submit a request for a specific training to the training institution and apply for a subsidy from the SDF, so that the training can be held with a low cost. SDF funds might come from an endowment fund at the Ministry of Finance – 2% of the total allocated fund for education – and/or from DPKK (Fund for Improving Skills) at the Ministry of Manpower, which collects a levy from foreign workers in Indonesia.
Another problem is that BNSP lacks funding for disseminating information about competency standard training to employees. Despite the fact that BNSP is an autonomous institution, it still gets its funds from the Ministry of Manpower. So far, 90% of the demand for competency-based training comes from migrant workers. There is also a need to create a demand from the employees’ side working within the country and at the same time increase the demand from the employers so that the certification program is mandatory rather than voluntary.
Other important discussion points are: (i) the vocational training centers (BLK) in local regions are not run optimally as they only give training twice a year. Therefore, local governments should be pushed to run more labor training to achieve similar competency standard across the country; (ii) in the context of AEC, government should establish new regulations which stimulate the establishment of competency standards, the certification of workers’ competence, and adjust salary structure to decrease the possibility of the brain drain; and (iii) the impact of standard of competency on productivity depends on the company’s environment and leadership.
In anticipation of the forthcoming free movement of labor under AEC, the government should give incentives to companies and labors to increase their competency standard and productivity by matching the supply and demand of the labor qualification. To do this, the establishment of SDF has to be accelerated, particularly the commitment to allocate funds from important stakeholders.
The importance of competency standard has to be disseminated more intensively among workers, employers and local governments and has to be made mandatory rather than voluntary. In terms of meeting the ASEAN competency standard, Indonesia only leads in tourism. Other priority sectors, particularly the ones which Indonesia has signed under the MRA, have to develop their standards as soon as possible.
From local governments’ perspectives, local governments should be pushed to make best use of the BLK so that workers across the country can reach the same levels of skill. Meanwhile, initiatives to establish regulations and to adjust salary structures are important to reduce possibility of brain drain under the AEC.