The population of an economy is divided into 2 categories, the economically active and the economically inactive. The economically active population (labour force) or working population refers to the population that is willing and able to work, including those who are actively engaged in the production of goods and services (employed) and those who are unemployed. Unemployed refers to people of the economy who are willing to work, but are not able to find suitable paid employment.
As said by the PARIS organization, on September 16th 2009, “Unemployment in the industrialized world will hit its highest level since World War II next year, surpassing the current peak, as the global economy looks set for only a timid recovery in 2010, an international organization said in a report Wednesday.” As said by this news report, Global unemployment has been skyrocketing the past few months and is expected to attain its peak in the coming year 2010. The LFB-Forex states that “Over the last quarter a rather grim picture from the global labor market revealed itself, as the unemployment rate rose to multi-year highs in most economies.” in an article posted on July 6th 2009. Probably the most important headline was that the unemployment rate moving to 9.5% in the U.S., the highest level since 1983. The same thing happened around the globe; the unemployment rate surged to record high values. Below is a graph that explains the above statement.
As the graph above shows, during years 2002-2003, unemployment rate is moving at a steady and slightly decreasing rate for countries such as U.S.A, Japan, Spain and more. During years 2007 onwards, unemployment rate begins to escalate to great heights and finally reached its peak so far in the year 2010.
Among all these countries, Asian countries are highest affected by unemployment rates due to lag in technology and some resources. Among these highly affected countries, is Indonesia. Below is a table which consists of the different percentage changes of unemployment rates in Indonesia for years 2003 through 2010:-
Year | Unemployment rate | Rank | Percent Change | Date of Information |
2003 | 10.60 % | 92 | 2002 est. | |
2004 | 8.70 % | 111 | -17.92 % | 2003 est. |
2005 | 9.20 % | 82 | 5.75 % | 2004 est. |
2006 | 11.80 % | 121 | 28.26 % | 2005 est. |
2007 | 12.50 % | 133 | 5.93 % | 2006 est. |
2008 | 9.10 % | 115 | -27.20 % | 2007 est. |
2009 | 8.40 % | 115 | -7.69 % | 2008 est. |
2010 | 7.70 % | 81 | -8.33 % | 2009 est. |
An article posted in the Jakarta Post on September 26th 2006 states that “The unemployment rate has reached an alarming level since it has risen to double digits. Despite its fluctuating drops, the unemployment rate has remained high. According to National Statistics Bureau data, as of June 30, 2006, the unemployment rate stood at 10.6 percent, or 11.6 million of the 106 million-person workforces, a 2 percent increase on the 9.5 million of the end of 2005. Under-unemployment, or those working less than 35 hours a week, has exceeded 43 million.”
More than 10,5 million Indonesians are seeking work. Neither under-qualification for labor nor discouragement is to blame for this high unemployment, but rather the low productive investment rate and unhealthy investment climate. There is a moral and political imperative for the Indonesian government to get the unemployed back to work and to create new employment for an almost two million new labor force entering the economy sectors annually. To understand the patterns of unemployment in Indonesia, we must first understand the labor forces of Indonesia. Below is a graph which shows the total labor force in Indonesia over the years 2003 through 2010:-
http://www.indexmundi.com/indonesia/labor_force.html
As the graph depicts, the labor force of Indonesia is at its highest this year and has matched its value along with 2005. Among these labor forces lie underqualified, unskilled labor forces. This may be a leading cause to the Unemployment in Indonesia. Most of the unemployed in Indonesia are young and inexperienced, still live with their parents, and have at least 12 years of education. Meanwhile, the poor who are not working, and to a certain extent the non-poor who are low educated and unemployed, tend to become discouraged.
This is one of the causes of Seasonal and Frictional Unemployment in Indonesia, and actual discouraged labor composes only a quarter of half unemployment or 18.3% of total open and half unemployment.
While unskilled labor forces contribute to the rise in unemployment in Indonesia, Many authors have accused the low economic growth rather than the unsatisfying labor quality as the key contributor to Indonesia’s unemployment. After the financial crisis of 1997- 1998 Indonesia’s economy has improved its GDP’s growth from 0.79% in 1999 to 5.6% in 2005. This data is expressed in the graph below:-
http://www.indexmundi.com/indonesia/gdp_real_growth_rate.html
Nevertheless, this positive development seems not to have a real impact in reducing the unemployment rate. The unemployment rate expands unrestrictedly with a 5.8% yearly average growth rate. The important essential factors that needs attention is the creation of better climate for investment. According to Kuncoro et al (2005) to start a new business in Indonesia, a company has to spend 180 working days to go through the 12 steps required for obtaining local permits. This drawback may lead to rise in unemployment in Indonesia.
ccording to macroeconomics, the Pattern of unemployment in Indonesia is well described as cyclic unemployment. This is because the Asian recession experienced in 1997-1998 lead to a downfall of the rupiah currency, which lead to a lower amount of spending, thus inevitably lowering output, production, productivity and finally employment. This condition is described as cyclic unemployment. There are a few measures to overcome cyclic unemployment namely:-
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