Abstract
After over a quarter century of sustained economic growth, Indonesia was struck by a large and unanticipated crisis at the end of the twentieth 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 chapter examines the impact of the crisis on labor market outcomes.
All correspondence to James P. Smith. We have benefited from the comments of Thomas Bauer, David Lam, Kai Kaiser, Jack Molyneaux and two anonymous referees. We thank the Badan Pusat Statistik, Indonesia, for permission to use their annual labor force surveys. We also thank our colleagues at RAND, Lembaga Demografi, UCLA, and the Population Study Centers in Indonesia who worked with us in the collection of the Indonesia Family Life Survey; we are especially grateful to Bondan Sikoki, Wayan Suriastini, Muda Saputra, and Cecep Sumantri. Financial support from the National Institute of Aging (NIA P01AG08291) and the National Institute of Child Health and Human Development (NICHD 1R01HR40245, 1R01HD33778, 5P50HD12639 and 5P01HD28372) as well as the POLICY Project, World Bank, and World Health Organization is gratefully acknowledged.
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Notes
- 1.
See Fallon and Lucas (1999) for an excellent discussion of the very limited evidence on labor market effects of recent economic crises.
- 2.
The sample includes four provinces on Sumatra (North Sumatra, West Sumatra, South Sumatra, and Lampung), all five of the Javanese provinces (DKI Jakarta, West Java, Central Java, DI Yogyakarta, and East Java), and four provinces covering the remaining major island groups (Bali, West Nusa Tenggara, South Kalimantan, and South Sulawesi). The IFLS1 sampling scheme balanced the costs of surveying the more remote and sparsely populated regions of Indonesia against the benefits of capturing the ethnic and socioeconomic diversity of the country.
- 3.
The sample was drawn in two stages. To reduce costs, seven of the 13 IFLS provinces were selected: two on Sumatra (North and South Sumatra), three on Java (DKI Jakarta, West and Central Java), West Nusa Tenggara, and South Kalimantan. These provinces span the full spectrum of socio-economic status and economic activity in the fuller IFLS sample. Second, within those provinces, we purposively drew 80 EAs with weighted probabilities to match the IFLS sample as closely as possible.
- 4.
IFLS2 contains over 21,000 individuals who completed the work history module. Of them, 5345 respondents are included in the IFLS2+ target sample based on their EA of residence in 1993. In total 7500 respondents completed the work history module in IFLS2+; of them, 2434 are new respondents (not interviewed in 1997) and 5067 are panel respondents interviewed in both 1997 and 1998.
- 5.
The estimates include East Timor which was part of Indonesia at the time.
- 6.
Recall self-employment income is not recorded in SAKERNAS. Wages are computed as the sum of monthly cash and in-kind income earned divided by 4.33 times weekly hours. All wages are in terms of 1997 rupiah deflated using province-specific consumer price indices published by BPS.
- 7.
Retail, construction, and manufacturing grew by 25%, 22%, and 11%, respectively, between 1995 and 1997; in construction and manufacturing, all of the gains were lost by 1998; half the gain was lost in the retail sector.
- 8.
Prices are probably lower in rural areas. However, uniformly lower prices in rural areas would only alter the location and not the shape of the curves presented in Fig. 4 and so would not affect inferences based on the difference-in-difference-in-difference.
- 9.
This assumes only one family member is productive in the business. We have confirmed that the results presented below are not driven by that assumption by taking the opposite extreme and treating all family workers as equally productive. In that case, hourly earnings in a family business are computed as the ratio of total earnings to total number of hours worked by all family members and the same hourly earnings rate is attributed to each family worker. See Thomas et al. (2000a).
- 10.
If interviews were randomly allocated over time in IFLS, we could control month of interview and directly compare IFLS with SAKERNAS. The interviews are not randomly assigned. Because IFLS is a panel survey, interviewers begin in areas that tend to be places migrants move from and end in areas that are destinations for migrants. This reduces the costs of tracking movers. Therefore, we do not attempt to extract any information from the month to month differences within IFLS.
- 11.
Work is defined as an activity for the sake of generating income or helping to generate income that takes up at least one continuous hour.
- 12.
See Korns (1987) who argues that there is evidence in SAKERNAS that self-employment and family employment do not seem to mean the same thing to all interviewers. In addition, he argues that part of the year to year variation in self-employment and family employment in SAKERNAS reflects changes in interviewer quality and training over years.
- 13.
Household earnings are the sum of individual earnings among all members of a household in 1997; thus, we ignore household splits, joins, and new entrants. We do this in order to focus on the household unit as it existed in 1997, independent of the current location of its members.
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Smith, J.P., Thomas, D., Frankenberg, E., Beegle, K., Teruel, G. (2022). Wages, Employment, and Economic Shocks: Evidence from Indonesia. In: Goulart, P., Ramos, R., Ferrittu, G. (eds) Global Labour in Distress, Volume I. Palgrave Readers in Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-89258-6_22
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