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  • iLabor Movement from Low to High Productivity Sector: Evidence from Indonesia’s Provincial Data i

  • APINDO Policy Seriesii

    APINDO-EU ACTIVE Project Team Members:

    Maya Safira (Project Manager) Riandy Laksono (Lead Economist)

    Muhammad Rizqy Anandhika (Economist) Sehat Dinati Simamora (Junior Economist)

    Nuning Rahayu (Project Assistant)

    The content of APINDO-EU ACTIVE working papers is the sole responsibility of the author(s) and can in no way be taken to reflect the views of Indonesia Employers Association (APINDO) or its partner instututions. APINDO-EU ACTIVE working papers are preliminary documents posted on the APUNDO website (www. apindo.or.id) and widely circulated to stimulate discussion and critical comment.

    Disclaimer

    APINDO–EU ACTIVE working papers are issued in joint cooperation between Indonesia Employer Association (APINDO) and Advancing Indonesia’s Civil Society in Trade and Investment (ACTIVE), a project co-funded by the European Union. ACTIVE project aims to strengthen APINDO’s policy making advocacy capabilities in preparing the business environment and to empower national competitiveness in facing global integration.

    For more information, please contact ACTIVE Team at active@apindo.or.id or visit www.apindo.or.id

    Dewan Redaksi

    Pelindung : Sofjan Wanandi

    Pembina : Chris Kanter Suryadi Sasmita

    Shinta Widjaja Kamdani Anthony Hilman

    Pemimpin Redaksi : P. Agung Pambudhi

    Tim Penyusun : Diana M. Savitri Riandy Laksono M. Rizqy Anandhika Sehat Dinati Simamora I.B.P. Angga Antagia Jefri Butarbutar Adrinaldi

    Wahyu Handoko

    Penyunting : Septiyan Listiya Eka R.

    Copyright©APINDO-EU ACTIVE Labor Movement from Low To High Productivity Sectors: Evidence from Indonesian Provincial Data

    Published in July 2014

    Acknowledgement

  • iiiLabor Movement from Low to High Productivity Sector: Evidence from Indonesia’s Provincial Data iii

    Productivity issues become crucial in every business and economic progress in developing countries. Indonesia, one of the next big-player in world economy, cannot ignore the importance to improve the productivities, including it labor productivities. In the condition of lagging productivities among ASEAN Countries, addressing labor productivities issue is urgent in order evaluate and improve our industries’ capability to compete in ASEAN Economic Community starting in 2015 and benefit our decades of demographic dividend.

    This second edition of APINDO Policy Series brings the productivity issue, particularly structural change as a channel to gain productivity growth. The research about the changes of productivity across Indonesian provinces becomes a significant input for industrial strategies, especially in this decentralized governance era. It maps which provinces gain and loss the productivity, as well as which sector allocates more or less labor, as a measure of productivity. It also tends to explain some determinant that related with structural change.

    As the employer organization concerning the employer interests, this paper should offer a significant contributions of APINDO to its stakeholder, by showing its consistency to encourage research-based advocacy to tackle strategic issues, such as minimum wage determination. Supporting by APINDO-EU ACTIVE Project, APINDO Policy Series hopefully can bring more industry, trade, and investment issues into the research-based analysis to recommend suitable policies.

    Finally, we appreciate APINDO-EU ACTIVE Team which deliver this policy paper and we would like to thank Muhammad Rizqy Anandhika and Riandy Laksono for studying this issue. We hope this policy paper could benefit Indonesian businesses in the future.

    Sofjan Wanandi Chris Kanter General Chairman Vice Chairman Indonesian Employers Association(APINDO) Indonesian Employers Association(APINDO)

    Foreword

  • APINDO Policy Seriesiv

    AEC ASEAN Economic Community ASEAN Association of Southeast Asian Nations BPS Badan Pusat Statistik (Indonesian Statistic Agency) FTA Free Trade Agreement GCI Global Competitiveness Index GDP Gross Domestic Product GRP Gross Regional Product INDO-DAPOER Indonesia Database for Policy and Economic Research ISIC International Standard Industrial Classification KHL Kebutuhan Hidup Layak (Decent Life Component) SAKERNAS Survei Angkatan Kerja Nasional (National Survey of Labor Force)

    List of Abbreviations

  • vLabor Movement from Low to High Productivity Sector: Evidence from Indonesia’s Provincial Data v

    Acknowledgement ..................................................................................................................................................................................... ii

    Forewords ......................................................................................................................................................................................................... iii

    List of Abbreviation ................................................................................................................................................................................. iv

    Content ................................................................................................................................................................................................................ v

    List of Figures ............................................................................................................................................................................................... vi

    List of Tables .................................................................................................................................................................................................. vi

    Abstract ............................................................................................................................................................................................................ 07

    1 INTRODUCTION ........................................................................................................................................................................... 07

    2 LITERATURE REVIEWS ............................................................................................................................................................ 09

    3 METHODOLOgy AND DATA ............................................................................................................................................. 11

    3.1 Methodology.............................................................................................................................................................................. 11

    3.1.1 Structural Changes Decomposition ............................................................................................................... 11

    3.1.2 Determinant of Structural Change in Indonesia, period 2001-2011 ...................................... 11

    3.2 Data ................................................................................................................................................................................................ 12

    4 THE RESULTS ................................................................................................................................................................................... 12

    4.1 The Pattern of Productivity Growth and Structural Change in Indonesia ...................................... 12

    4.2 Determinant of Structural Changes ........................................................................................................................... 15

    5 Conclusion and Policy Recommendations ............................................................................................................... 19

    5.1 Conclusion ................................................................................................................................................................................... 19

    5.2 Policy Implications ................................................................................................................................................................ 20

    5.3 Recommendation for Further Research .................................................................................................................. 21

    References ....................................................................................................................................................................................................... 22

    Appendices ................................................................................................................................................................................................... 23

    Appendix A: 9 sectors - ISIC rev. 2 .................................................................................................................................... 23

    Appendix B: Variable definitions, sources, descriptive statistics ......................................................................24

    Contents

  • APINDO Policy Seriesvi

    Figure 1 Labor Productivity of Indonesia and other ASEAN 5

    countries (excluding Singapore) ......................................................

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