Regional Labor Markets during Deregulation in Indonesia: Have the Outer Islands Been Left Behind?

No. Export-led industrialization concentrated in Java-Bali has also helped change the labor market and income growth outside Java-Bali. Improved wages and the shift of labor out of agriculture partly reflect the government's continuing support for infrastructure and human resource development in the Outer Island provinces. Indonesia's labor markets, especially on the island of Java, have been transformed in the past 30 years, especially since liberalization picked up speed in the mid-1980s. Manning explores the regional dimensions of that transformation. In some other countries, when labor markets have changed, disparities among regions have occurred. But in Indonesia, when the employment structure changed markedly (especially after 1987), real wages rose not only in Java-Bali but also in most Outer Island provinces. Wages have grown more rapidly in Java-Bali, but labor in the Outer island provinces has enjoyed large gains, the result of the rapid economic growth that came during deregulation. 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. Labor market outcomes have also been less favorable in land-abundant provinces that received many assisted migrants during Indonesia's earlier oil boom. Manning concludes that export-led industrialization concentrated in Java-Bali has helped change the labor market and income growth outside Java-Bali also. Improved wages and the shift of labor out of agriculture also partly reflect the government's continuing support for infrastructure and human resource development in the Outer Island provinces. This paper - a product of the Indonesia Policy and Operations Division, Country Department III, East Asia and Pacific - is part of a larger study of Indonesia's labor market.