Wages, Employment and Economic Shocks: Evidence from Indonesia
Abstract
After over a quarter century of sustained economic growth, Indonesia was struck by a large and unanticipated crisis at the end of the 20th Century. Real GDP declined by about 12% in 1998. Using 13 years of annual labor force data in conjunction with two waves of a household panel, the Indonesia Family Life Survey (IFLS), this paper examines the impact of the crisis on labor market outcomes. Aggregate employment has remained remarkably robust through the crisis although there has been significant switching within sectors. The drama of the crisis lies not in aggregate employment but in real hourly earnings which, in one year, collapsed by around 40% for urban workers -- be they males or females, in the market sector or self-employed. Declines of the same magnitude are recorded for females in the rural sector and rural males working for a wage. In stark contrast, real hourly eamings of self-employed males in rural areas have remained essentially stable. Given these workers account for about one quarter of the male work force in Indonesia, conclusions about the effects of the crisis that focus only on the market wage sector substantially over- state the magnitude of the crisis. Indonesian families have displayed a remarkable capacity for resilience in the face of the crisis. We estimate that declines in real family incomes are about half the magnitude of the declines in individual hourly earnings indicating that households have adopted strategies to mitigate the effects of the crisis. Those strategies appear to have been most successful for those at the top of the income distribution. At the bottom of the income distribution, the crisis has had a devastating impact on real incomes suggesting that it is the poorest who will likely bear the brunt of any deleterious medium and longer-term effects of the crisis.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 2000
- Accession Number
- ADA380613
Entities
People
- Duncan Thomas
- Elizabeth Frankenberg
- James P. Smith
- Kathleen Beegle
Organizations
- RAND Corporation