Researcher at the Center for Public Policy Transformation
Indonesia’s unrelenting youth unemployment requires new strategies in job creation, especially in the aftermath of massive layoffs across the archipelago earlier this year and the upcoming demographic bonus period.
Between 2025 and 2035, it is predicted that the number of people within the productive age bracket will be higher than the number of elderly people and children.
About a fifth of the country’s young men and a third of young women aged 15 to 24 do not have a job nor go to school, the World Bank announced in 2010. Similar concerns were voiced by Gustav Papanek and other writers in their 2014 book The Economic Choices Facing the New President. With current growth rates, only 800,000 jobs in the formal sector will be created annually for the two million young people estimated to join the workforce every year.
In the past year, the government has made a concerted effort to boost employment rates in the manufacturing sector, which houses those industries with the highest capacity to absorb labor.
Some of these efforts include the issuance of a new minimum wage policy that allows the private sector to better approximate their future business costs, along with other selective policy interventions in the economic packages issued since last September.
Nevertheless, little has been done to enhance workers’ competencies outside of the general school system.
Skills upgrade is an area that should be addressed in greater detail by the government given the heightened competition in attracting investment in certain professional fields.
At a similar development level, Vietnam is home to a well-educated and young labor force that has benefited from excellent education and training programs targeted at upgrading workers’ skills and increasing labor productivity.
One such program was the 10-year vocational and technical education project by the Asian Development Bank that was able to successfully train a total of 108,000 skilled workers and production technicians by 2008.
Various economists as well as international organizations have called on the government to improve the quality of vocational training in skills relevant to sectors that contribute the most to the economy.
One way that this can be achieved is to utilize vocational schools at the secondary level ( SMK ) as well as public training centers at both the provincial and local levels ( BLK ), and tailoring their curriculums to suit the needs of the target industries.
Both national and local level government can learn from the innovative competency-based training programs available in Bantaeng, South Sulawesi and Pasuruan, East Java. Consisting of several packages ranging from “tourism package” to “English language package” and “processing package”, these programs were specifically designed by the regency to meet the employment needs of the private sector.
More importantly, it ensures that the skills possessed by the local workforce are compatible with industries hiring in the region.
Recent headlines suggest that the government has started to upgrade the workforce through the revitalization of BLKs. In their five-step plan, the government indicated a plan to abolish the SMK certificate requirement for admission; reorienting curriculum content to priority sectors such as manufacturing and tourism; renewing equipment, buildings and programs; integrating value-added courses; and partnering with the private sector to invest in and co-manage the training centers.
At the vocational secondary school level, efforts should be made to ensure that the quality of education corresponds to increasing rates of secondary school enrolment. Questions remain as to whether the secondary education system sufficiently prepares students to succeed in the workplace.
According to February 2016 data of the Central Statistics Agency ( BPS ), the unemployment rate of SMK graduates stood at 9.84 percent, higher than regular secondary school graduates at 6.95 percent.
Aside from skills upgrade, entrepreneurship is another pathway that has the potential to alleviate the problem of youth unemployment. It is widely accepted that the practice of entrepreneurship creates jobs, either through self-employment or by producing jobs for others; encourages innovation; stimulates the economy; and is relatively sustainable if properly managed.
In developing countries, entrepreneurship is considered crucial for the development of vibrant and formal small-to-medium sized enterprises ( SMEs ).
Research on Indonesia’s labor market finds that SMEs account for more than 95 percent of total firms, and are responsible for more than 90 percent of the country’s employment. The importance of SMEs for the economy was highlighted in several policy packages, which have simplified the procedures required to establish an SME and reduced the interest rate for micro credit loans by more than half, from 20 to 9 percent.
In addition to ease of access to finance, business mentorship must be provided alongside credit disbursement to strengthen the impact of entrepreneurial activities.
It would be beneficial for the government to run mentorship programs in cooperation with the private sector, given their industry expertise. These programs could take the form of mentor-mentee relationships, or education and training through classes and incubation programs.
However, upgrading formal sector workers’ skills and fostering the youth entrepreneurial spirit will have direct implication on the labor markets and as such will need to be accompanied by supporting policies.
For instance, a guaranteed annual increase of the minimum wage is a burden for small business owners. To ease this burden, the government may need to come up with a separate minimum wage framework for workers in small businesses.
It is also important to account for the large informal sector, which comprises 60 percent of the total work force. Continuing to leave certain industries unregulated, without providing a feasible alternative to the sector’s working poor, may have serious repercussions on the welfare of the workers.
The disruption created by technological innovation in the informal transport industry, for example, has affected the already meagre income of existing workers.
Tackling youth unemployment requires a holistic approach that takes into account the implications of existing policies.
This includes better policy coordination and an open, two-way communication forum involving government institutions and other stakeholders, such as private sector representatives and young workers targeted by the initiatives.
The writer is a senior researcher at the Center for Public Policy Transformation
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