Indonesian Labour in Transition: An East Asian Success Story?

• Author: Suliman, Osman
• Position: Review

By Chris Manning. Cambridge, UK: Cambridge University Press, 1998. Pp. xxii, 323. $59.95.

This book examines the transformation of the labor market in Indonesia from a surplus labor economy to a growing industrial one over 30 years of the Soeharto regime. It purports that government-guided economic growth enabled Indonesia to bolster labor productivity, wages, and total employment.

The book contains 10 chapters, carefully organized into four main parts. Part 1, which includes the first two chapters, sets out the scene of the book. Chapter 1 offers a lucid presentation of Indonesian labor market issues; Chapter 2 extends the discussion, comparatively, to other developing economies, especially the Asian Newly Industrialized Economies (NIEs). For brevity, I would have liked the two chapters to be combined into one chapter, with Indonesian data directly juxtaposed with data of other countries. Two other points deserve more explanation. The author claims that real wages were relatively lower in Indonesia given that labor-intensive production was growing at a slower rate than the labor force, mainly because the unemployed workers lacked skill or preferred to walt longer for a better job. For one thing, as the author acknowledges on pages 6 to 7, the abundance of natural resource-intensive production (especially during the oil boom) might have dominated, giving way to a "Dutch Disease" experience in Indonesia. Also, the real wage was probably held down by the preponderance of surplus labor, in which the withdrawal of labor has minimal effect on output. That is, as Lewis (1954) points out, the rural average product (real income) might have exceeded the going wage rate (marginal product) elsewhere.

Part 2 succinctly delves into economic growth and labor market dynamics. Chapter 3 investigates economic growth and social transformation. Chapters 4 and 5 explain how nigher productivity spurred wage rates and employment. Although eloquently stated, the author's proclivity to distinguish the Indonesian experience from that of other NIEs is rather vague. He emphatically argues that Indonesia did not experience a significant rural-urban migration with industrialization. Disaggregated data in Appendix Table 3.1 (p. 83) belie his contention. The female labor participation in urban areas went up by 40% in the period 1971-1990, whereas their participation in rural areas increased by only 23%. The male participation increased in both rural and urban areas by...