REGIONAL LABOUR MARKETS DURING DEREGULATION IN INDONESIA

Indonesian labour markets have undergone a major transformation over the past 30
years, especially on Java since liberalisation gathered pace in the mid 1980s. The
paper focuses on regional dimensions of these changes. In contrast to emerging interregional
disparities in some other countries, it finds that employment structure has
changed markedly and real wages risen in most Outer Island provinces since 1987.
While wage growth has been more rapid in Java-Bali, labour in the Outer Island
provinces has enjoyed large gains from rapid economic growth during the
deregulation period. Among Outer Island provinces, Northern Sumatra and the poorer
Eastern Island provinces have experienced substantial growth, while the Kalimantan
provinces have lagged in manufacturing employment and wages. Labour market
outcomes have also been less favourable in land abundant provinces which received
large numbers of assisted migrants during the earlier oil boom period. It is concluded
that export-led industrialisation concentrated in Java-Bali has contributed to labour
market transformation and income growth outside Java-Bali. In addition,
improvements in wages and the shift of labour outside agriculture have been
supported by continuing government support for infrastructure and human resource
development in the Outer Island provinces.