The benefits of growth for Indonesian Workers

Nisha Agrawal

No 1637, Policy Research Working Paper Series from The World Bank

Abstract: Indonesia's adopted development model has proved to be the most successful in alleviating poverty and benefiting workers in developing countries. The government's development efforts focused on agriculture, education, and transport infrastructure. It emphasized providing productive employment opportunities and gradually improving the labor quality through education and training. The wage, employment, and income growth rates were left to market forces. Although the rapid growth of labor-intensive manufacturing has led to more jobs and higher wages benefiting workers, workers employed in these industries have expressed growing dissatisfaction. They complain about problems of child labor, the denial of centrally mandated wages and benefits to workers, poor working conditions, and the abuse of young female workers. The government has tried to improve worker's wages and working conditions by centrally mandating higher labor standards, relying principally on minimum wages. Enforcement has improved and, despite low compliance, minimum wages are beginning to bite. Indonesians are debating whether they need labor intensive industries and whether it is a mistake to base Indonesia's growth on cheap labor. They argue that if labor is more expensive, manufacturers must substitute some capital for labor. However, if labor-intensive industries are rejected, the capacity of the economy to absorb plentiful workers will be reduced. The main alternatives are to push up wages now, or to let wages be determined by market forces and strengthen institutions that could improve working conditions, such as labor unions. The author recommends maintaining flexible labor markets and allowing market forces to set the pace of change, while strengthening labor unions.

Keywords: Environmental Economics&Policies; Public Health Promotion; Labor Policies; Health Monitoring&Evaluation; Work&Working Conditions; Environmental Economics&Policies; Health Monitoring&Evaluation; Banks&Banking Reform; Work&Working Conditions; Municipal Financial Management (search for similar items in EconPapers)
Date: 1996-08-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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