Jobs and Economic Performance

Employment could be the most challenging issue of our time both in developed and developing countries, especially for policymakers at all levels. Economic growth, including business, occur through economic activities called jobs. For most countries, especially least developed and developing countries, policies related to job creation go hand-in-hand with poverty alleviation and reducing the income inequality gap. This in turn leads to more political and social stability.

Having reduced its fiscal deficits in 2012, most European countries will now have to deal with the next most difficult aspect in economic recovery: rising unemployment rate in the Euro zone is 11,7%. This means over 18,7 million people are without jobs. Greece has the highest rate with an all-time high record of 26,8%, followed by Spain 26,1% and Portugal 16,5%. The most alarming is the countries’ youth unemployment, which is the highest in 25 years with Greece at the top with 57,6%, what some call the making of a “lost generation”.

Prof Firmanzah
Prof Firmanzah

In the U.S., jobs carry a heavy political nuance. Some felt president Barack Obama owes his reelection to the fact that for two consecutive months before Election day, the U.S. unemployment rate for the first time dropped below 8% since he took office.

For the Indonesian government, jobs and employment are also priorities in its development agenda. Creating jobs and securing existing jobs reduces poverty, bridges the income gap, reduces social and political tensions, maintains and increases purchasing power. Nowadays, job policies are highly related to demographics, technology and innovation, productivity, industrial transformation as well as higher minimum wages.

Hence, the main economic challenge is how to increase labor-productivity to support high and stable economic growth. Capacity building provided by central and local governments, corporations as well as individual workers would be the short-term solution to boost labor productivity. In the long term, maintaining 20% of the national budget for education is expected to leverage Indonesia labor’s competiveness.

Structurally, Indonesian workers are engaged in the agriculture sector and small-scale businesses. The national development plan agency, BAPPENAS, reported that more than half of Indonesian workers are found in the informal sector. As such, the situation calls for an appropriate policy stimulus in order to maintain and develop the purchasing power of workers. The inflation rate is also paramount; the levels need to be kept as low as possible. Additionally, microcredit programs secured by the government are useful to create many more micro scale enterprises.

The government is planning to create one million new jobs on a nation-wide basis this year. Some strategies are being prepared and are taking place to attain this target. Investment for infrastructure projects  in the “master plan for Acceleration and Expansion of the Indonesia Economy” (MP3EI) this year  are expected to reach Rp.546,6 trillion. The development of infrastructure projects is expected to create more jobs and at the same maintain existing jobs in the construction, financial, transportation sectors. At the same time, entrepreneurship programs and incentives are also expected to produce more Indonesian young entrepreneurs to optimize the economy’s potentials.

In the midst of the current global economy slowdown, the government strives to maintain macro stability and to improve the investment climate. In 2012, total investments in Indonesia was Rp.312,2 trillion, up 25% over the previous year. Investment flow means new jobs in the market, thus maintaining purchasing power and assuring products and services are absorbed by the domestic market. This circular flow of jobs-purchasing power-market absorption is one of the plausible explanations why the Indonesian economy last year grew by 6,2%, the second highest among G20 members.

Key word: MP3EI, Investments in Indonesia, G20.

Write by Prof. Firmanzah. He is ex the president special staff for economics and development. (Source: Forbes Indonesia).

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