The Tale of Two Labour Markets: The Resilience of the Indonesian Labour Market to the Global Financial Crisis Versus Increasing Casualization of Jobs

Abstract

From the 1970s to the 1990s, Indonesia made incredible economic and social progress. During this period, Indonesians moved from rural to urban areas to take up better-paid jobs and, as a result, poverty fell from 40 per cent in 1976 to 11 per cent two decades later (Dhanani and Islam 2001). This rapid development trajectory was brought to a halt by the East Asian financial crisis of 1997–1998 and the subsequent political crisis, which sent the country into a deep recession leaving millions in poverty. Despite this tragic reversal of fortunes, the labour market appeared to be rather stable at the aggregate level — the impact of this crisis was more evident in transitions across different types of employment rather than a fall in the number of jobs, along with a sharp fall in real wages. In particular, the massive economic contraction in 1998 resulted in an increase in agricultural and informal sector employment and a rise in female labour force participation as a household coping mechanism (Fallon and Lucas 2002; Islam and Chowdhury 2009; Manning 2000). The period following the East Asian financial crisis has been described as one of ‘jobless growth’, which has been variously attributed to public sector downsizing, slower industrial growth, the failure of the service sector to take up the slack, and the excessive regulation of the Indonesian labour market (World Bank 2010). In terms of the last factor, many commentators have blamed the Manpower Law (No.13/2003) for the poor labour market outcomes, especially with respect to the rise