Employment and Skills Strategies in Indonesia

1. Assessment and recommendations

Promoting quality jobs and people’s skills across all Indonesian provinces will help put its economy in the high-income group by 2045

This report comes at a time when Indonesia is challenged by the outbreak of COVID-19, which will put pressure on local labour markets and risk drawing millions of people into poverty. Before the pandemic hit, the growth path of the Indonesian economy had been remarkable. In the 1960s, it was one of the poorest countries in Southeast Asia but it embarked on a structural transformation, shifting from agriculture to higher value added production, including manufacturing, industry and services. It is the largest economy in Southeast Asia, with a GDP of over USD 1.1 trillion in current prices in 2019. Growth has been accompanied by gains in education and labour market outcomes across the country. The unemployment rate stood at 5.3% in 2019, in line with the OECD average, but higher than the average across ASEAN countries in the same year. Approximately 64.3% of the Indonesian population was employed in 2019, slightly lower than on average across ASEAN countries (67.4%), but higher than the OECD average (57.1%).

These economic and social achievements are put at risk by the COVID-19 crisis. As a result of the pandemic, the global economy is projected to contract sharply by -3% in 2020, much worse than during the 2008–09 global financial crisis. The Indonesian government’s baseline scenario is for economic growth to drop to 2.3%, the lowest in 21 years, with a worst-case scenario of an economic contraction of 0.4% this year. As measures to mitigate the health impacts of COVID-19 are implemented, the labour market has been affected. It is estimated that job losses could be in the range of one to seven million, resulting in almost a doubling of the unemployment rate. As of April 2020, the Ministry of Manpower reported that 1.5 million workers had already been put on unpaid leave or laid off. Preliminary estimates indicate that the poverty rate could increase to 12.8% in 2020, with an additional 9.5 million people falling below the national poverty line.

The government has set ambitious targets for the future with the goal that Indonesia will enter the world’s top five economies by 2045. To achieve this, the government has identified five national priorities, which include infrastructure investment, regulatory simplification, civil service modernisation, economic transformation, and human capital development.

The large majority of the Indonesian population is today literate, with 60% of the working age population having completed primary or junior secondary education. That being said, individuals with higher levels of education achieve substantially higher income levels than the rest of the population. The average schooling years of the bottom 20% of the income distribution are still almost half the schooling years of the top 20%, amounting to 6.4 and 11 years respectively. The current COVID-19 crisis risks negatively affecting education outcomes in Indonesia and increasing disparities in access to education across segments of the population. The crisis is likely to lead to increased school drop-outs, particularly affecting the near poor and vulnerable, who might leave education to economically support their family.

Informality remains a significant challenge in Indonesia, where Statistics Indonesia estimates that 43.8% of non-agriculture employment and 87.5% of agriculture employment are in the informal economy in 2019. Informal jobs typically offer low quality, unproductive and poorly paid employment opportunities with little or no social protection. As several provinces went into lockdown to mitigate the COVID-19 outbreak, this could deeply affect informal workers, who would have no income or emergency medical leave. This includes those working in shops, street food vendors, and vendors in traditional markets. In addition, one in two workers in Indonesia is in conditions of vulnerability, being a contributing family worker or own-account worker.

Differences in employment outcomes are significant across segments of the population. Young people, in particular those aged 15-19, have substantially higher unemployment rates than the rest of the population. In 2019, 22.6% of youth are not in employment, education, or training (NEET), and the proportion is higher among young women (28.7%). Comparisons with other ASEAN countries show that the share of 15-24 year-olds who are neither employed, nor in education or training is higher in Indonesia than in most other countries in the region (20.1% in Brunei Darussalam, 18.8% in the Philippines, 14.9% in Thailand, 14.6% in Viet Nam, and 4.3% in Singapore). There are also substantial gender gaps in pay and labour force participation in Indonesia. By some estimates, the gender pay gap amounts to around 20% in Indonesia, compared to less than 15% in the OECD. Women are also more likely to be in low-paid work than men in Indonesia, with the share of full-time male workers being in low-pay amounting to 20% compared to almost 40% for women. While male labour force participation is among the highest across ASEAN, only about one in two women participate in the labour force in Indonesia, among the lowest in the region. Projections show that Indonesia is unlikely to reach its Group of Twenty (G20) target of decreasing the gender gap in participation by 25% between 2014 and 2025.

The national picture hides differences across provinces within Indonesia, with some rural and remote provinces, especially in the east of the country, suffering from high illiteracy rates and lower educational attainment, as well a significant prevalence of agricultural employment and informality. For example, data from Statistics Indonesia show that about 22% of the population was illiterate in Papua in 2019. Looking at unemployment rates, there are large provincial variations ranging from a low of 1.5% in Bali to a high of 8.1% in Banten in 2019. Local institutions will be at the front-line of the crisis response across Indonesia, therefore there is an opportunity to build the capacities of employment and training institutions to ensure they effectively contribute to the recovery.

The Government of Indonesia has responded well to meet the initial public health needs. In March 2020, the government established a COVID-19 task force chaired by the head of the National Disaster Mitigation Agency with senior representatives from the Ministry of Health, the Ministry of State-Owned Enterprises, Indonesian Military, and the National Police. The central government also issued a regulation to allow local governments to formally restrict the movement of people and goods in their territory with approval from the minister of health. Measures to bring the COVID-19 pandemic under control are summarised in Table 1.1.

The government has announced measures worth USD 32.4 billion to fund substantial increases in public spending on health, social assistance to the poor and vulnerable, and support to businesses. Prior to COVID-19, the government mandated that 5% of the total national budget be spent on health. Accordingly, USD 7.6 billion had originally been allocated for 2020. To face the pandemic crisis, an additional USD 4.3 billion was allocated to health spending. Social assistance measures include family support programmes, basic food assistance, electricity subsidies and house incentives among others, for a total of USD 6.4 billion. The government has also simplified requirements for imports and exports, including raw materials, to increase the competitiveness of enterprises.

Table 1.1. Summary of measures to bring the COVID-19 pandemic under control

Measure	Description
Preparedness plan	The plan, based on technical advice from the World Health Organization, details: (i) clinical management, particularly of critical cases; (ii) infection prevention and control among health workers and the general population; and (iii) specimen management and laboratory confirmation to reduce the spread of COVID-19.
Social distancing	Some local governments have introduced social distancing measures to contain the disease, such as a ban on mass gatherings, temporary closure of schools and tourist attractions, limitations of religious activities, and urged ‘physical distancing’ to reduce transmission. People may still travel to fulfil basic needs.
Medical personnel	In addition to 40 320 specialist doctors, the government has deployed students from 158 universities and 15 000 volunteers. Medical personnel are promised bonuses (IDR 15 million for specialist doctors, IDR 10 million for general practitioners, IDR 7.5 million for midwives and nurses, and IDR 5 million for other medical personnel).
Test kits and equipment	The government has made available approximately 1 million kits for mass screening, while prioritizing government workers for testing. Across 2 867 hospitals throughout Indonesia, there are 8 413 ventilators available.
Repurposing and building of facilities	The government designated 132 referral hospitals containing approximately 41 000 beds for COVID-19 and repurposed the athletes’ village used for the 2018 Asian Games in Jakarta into an emergency hospital containing 1 800 beds. The government purchased 175 000 new sets of protective equipment. 13 medical schools and 13 teaching hospitals were upgraded to serve as extra COVID-19 laboratories.
Visa suspension	The government temporarily suspended visa issuance for all countries and expanded restrictions to people from the worst-hit countries.

Source: Asian Development Bank.

Over the longer term, the government will need to identify strategies that promote higher productivity and innovation to ensure Indonesia achieves its goal of joining the high-income group by 2045. This requires robust investments in human capital to ensure young people have access to quality skills training, while also providing more opportunities for workers to re-skill in the workplace. It also requires working closer with employers, especially at the local level, to consider how skills training opportunities can support technological transformation in the overall production of goods and services. Automation and innovations in digital technology will provide new opportunities for Indonesia to accelerate productivity and sustainable development. The government could consider the following recommendations to support local employment and economic development opportunities across all Indonesian provinces.

Local strategies to connect people to jobs across Indonesia’s provinces

The government could strengthen the institutional capacity of local employment offices

Labour market services are increasingly important in government efforts to boost overall employment outcomes. In an emerging economy context, they also play a role in reducing informality in the labour market. Strengthening their contributions to this agenda requires that services have the capacities and resources needed to help jobseekers, build connections with employers, and stimulate economic development. An important challenge for labour market services, not only in Indonesia but across several emerging economies in Southeast Asia, is overall capacity limitations, including the low coverage of rural and remote areas. In 2015, the International Labour Organisation (ILO) reported that the number of total employment offices staff in Indonesia amounted to approximately 300 people. With respect to an estimated unemployed population of more than 7 million, employment offices are substantially understaffed. In rural and remote provinces, limited hard and soft infrastructure can make the provision of labour market services even more challenging.

Within Indonesia, local offices of the Ministry of Manpower are responsible for labour market services across provinces and cities. Services include job fairs, events as well as face-to-face consultations. An online system operating through local offices enables jobseekers to access job opportunities and employers to access potential employees. However, outside urban centres, where internet access is widespread, this system does not work well. In parallel, the private sector has also begun to provide labour market services, with private employment agencies (Lembaga Penempatan Tenaga Kerja Swasta, LPTKS) able to provide job matching services upon authorisation from the Ministry of Manpower or Governor of the province.

Going forward, Indonesia could look for opportunities to increase the capacity of employment offices across the country and ensure that front-line staff have the right skills and are well trained to conduct mentoring and counselling with jobseekers. Stakeholder interviews conducted for this OECD study point out to high turnover of trained staff and their replacement with new and unprepared staff as one of the main challenges within employment offices. A particular focus could be devoted to rural and remote areas, as job creation programmes are often concentrated in economically advanced regions.

Indonesia could look to other examples from the ASEAN region. For example, in the Philippines, new laws were passed in October 2015 with the goal of “professionalising” employment services across the country. This law stipulated that employment service offices should be established in all provinces, cities, and municipalities, and shall be operated and maintained by local government units in the Philippines. The law also established certain staffing requirements as well as rules around monitoring local labour market information to gather more intelligence about the number and nature of jobs available.

Internet, smartphone penetration and technological innovations provide opportunities to leapfrog ahead in expanding the scope and reach of labour market services

The internet has become an increasingly important channel for the delivery of labour market services in both OECD and non-OECD countries. The service delivery channels available for labour market services have changed dramatically over the past 25 years, from traditional face-to-face and mail channels, and the introduction of electronic channels such as websites and e-mail, to the arrival of social media and mobile applications and services. Additionally, the use of new technologies for more back-office functions such as collecting labour market information is also taking on increasing importance. The Ministry of Manpower has developed two online platforms to support job search and placement: the Info Pasar Kerja website and the 3 in 1 Kiosk. The Info Pasar Kerja website allows for the online registration of individual jobseekers and firms, and presents a list of current job openings, while the 3 in 1 Kiosk is provided within vocational training centres (BLK) and online, combining vocational training, skill certification and employment placement. In 2018, there was a total of 539 730 registered jobseekers on the Info Pasar Kerja website and 485 212 job vacancies posted on the website, but only 3% of registered jobseekers (around 17 600) found a job through the website. The Government of Indonesia is also making use of internet and digital technologies to implement its new flagship programme, the pre-employment card (kartu prakerja). The programme aims to aid jobseekers and laid-off workers by granting them access and funding to a broad range of training. Online registration for the card is available to Indonesian citizens aged 18 and older who are not attending school. The programme specifically targets unemployed youth, but it is also open to workers and other jobseekers. During the COVID-19 outbreak, the government made changes to pre-employment cards so that they could serve as assistance for workers affected by layoffs or the workforce who had just graduated from education.

As internet penetration has increased across Indonesia, with almost half of the population using internet today, especially in urban centres, there is room for expanding the provision of online labour market services. In addition, more than 70 million people have a smartphone in Indonesia, accessing internet from their phone and representing an opportunity for the government to provide easily accessible services. Online technologies can be used for standardised procedures such as initial registration and posting job vacancies; personalised interactions between staff and clients; casework counselling functions; and skills training and development. Online vacancy databases are the most used vacancy platforms in most countries, as measured by the proportion of all vacancies in the economy being notified to the employment services database. Among OECD experiences, in Germany, around 50% of all vacancies are reported to the public employment service (PES). In Korea, Work-Net is a national jobs portal providing job matching services, including various job openings and jobseeker information, with multiple search options by location, occupation, company type, and company benefits. While online services can be a cost effective way of reaching a broader audience, their use should be monitored carefully. The success of web-based channels is predicated on the level and quality of internet access, and the degree of internet usage and skills of specific client groups. While internet-based services would allow reaching a broad audience in Indonesia, especially in urban centres, the situation is different in rural and remote provinces, where internet access is limited. The Ministry of Manpower could therefore promote the provision of multiple service delivery channels, which are adapted to the specific needs of each province and city. In such provinces, face-to-face contact may continue to be the most effective way of delivering certain types of services.

Technological innovations could also help with developing good profiling tools that would more efficiently assess the prospects of jobseekers in finding employment. Profiling tools can also help improve the efficiency of services provided, which is critical when dealing with limited budget and staff resources and capacity. The Ministry of Manpower could consider integrating profiling tools within the delivery of labour market services. The most traditional ways of profiling have been rule-based profiling using eligibility criteria, such as age and unemployment duration, to classify jobseekers into groups, and caseworker-based profiling, based on caseworkers’ judgement of the specific context and challenges of each jobseeker.

Alternatively, statistical profiling tools, which use statistical models to predict labour market disadvantage, could be adopted. This approach has gained prominence in Europe over the past decade, and more countries have adopted the model. Such models can also help overcome the challenges of the other two approaches to profiling, by limiting budgetary pressures, taking into account changes and the great diversity of jobseekers. The quality and type of data are critical for determining the accuracy of statistical profiling models. Therefore, this needs to be considered in assessing whether to adopt such practices in Indonesia where data quality could be difficult to ensure. Inputs to be collected include socio-economic characteristics, motivation to look for and accept a job (e.g. job-search behaviour, expectations on pay), job readiness (e.g. education, skills, potential limitations), and opportunities on jobs available at the local level. Based on the inputs collected, statistical profiling models could be used to rank jobseekers based on their risk of long-term unemployment, being classified as “low risk” and “high risk”. It should be noted that profiling models are not costless to design or maintain and decisions based on wrong predictions could result in increased costs rather than improving cost efficiency. As such models are developed based on historical data, continuous updates are needed for the model to remain useful.

There is an opportunity to better engage firms in the supports and services offered by local employment offices

As the scope and penetration of labour market services in Indonesia is rather limited, an effective way to develop services that reduce informality and better match people with good jobs is to respond better to the needs of businesses and jobseekers. Local partnerships between employment offices, the business community and other local actors could improve the services currently provided. To strengthen services in Indonesia, steps could be taken to better engage employers in gathering vacancy information and job matching. Research in OECD countries identifies two general models for employer engagement, which Indonesia could draw upon; organisational models in which the same counsellors work with both employers and jobseekers, and organisational models in which employment services have dedicated employer relationship staff. For example, in Australia, employment services providers often have a “reverse marketing” function that actively works with employers to identify job vacancies.

Employment services with dedicated employer relationship staff can be further broken down based on whether the staff specialise in particular sectors or business sizes and whether there are account managers that deal with particularly large clients. For example, in France, the PES has formal agreements with large company networks and industry sectors concerning recruitment support. France also provides dedicated spaces for jobseekers and new businesses to come together, which creates opportunities for recruitment. Another approach is to partner with private employment service providers, such as Manpower and Adecco, to share vacancy information, as done in Mexico.

The government could develop more targeted local employment programmes for youth and other disadvantaged groups

Young people face a challenging labour market context in Indonesia, with unemployment rates four times higher than for the rest of the population, low labour force participation rates and a high share of youth not in employment nor in education or training. The situation is especially critical for youth aged 15-19. Labour market services are open to the general population, while targeted programmes for disadvantaged segments of society, such as youth, women or vulnerable groups, are rare. Some youth-specific services are provided by the Ministry of Youth and Sports Affairs, although not in a comprehensive and systematic way. Labour market services in Indonesia could further reach out to those most in need, including young people. The importance of a concerted effort among ministries and across levels of government could be reinforced, for example by revitalising the role of the Indonesian Youth Employment Network (IYEN) in bringing together different stakeholders to discuss and develop policy solutions aiming to foster youth employment and placing youth job creation high on the agenda. Services specifically targeting young people could also be developed. Examples from other countries show the important role to be played by targeted counselling and career guidance for young people, together with services that foster skills development and inform young people about job opportunities.

Young people could be targeted through both online initiatives and face-to-face consultation. For the success of career guidance and counselling, capacity building programmes are needed for employment offices staff, enabling them to provide more efficient services for young people. An online targeted campaign, as well as closer co-operation between the Ministry of Manpower and the Ministry of Education and Culture, could be instrumental in providing young students and graduates with labour market information that could inform their study choice or help them find a job. For example, as the Ministry of Education and Culture organises annual SMK fairs throughout the country, these could represent an opportunity to raise awareness of the online job portals.

The government could also build on local initiatives being currently undertaken by several city governments. For example, in Surabaya, the Pejuang Muda Surabaya programme aims to foster youth development by engaging young people in trainings with representatives from academia, the business community and the government. The programme specifically targets young people aged 20-39 not formally employed, and proposes trainings and internships in crafts, the culinary sector and the fashion industry. In Makassar, it was observed that the poor conditions of streets and alleyways were among the main contributors to informality and poor working conditions for young people. As a consequence, a programme has been developed to build and renovate streets, leading to the creation of 5 800 new alleyways with the objective of lifting living standards and formal employment.

Local strategies to build skills across Indonesian provinces

Indonesia has achieved substantial progress in improving skills outcomes but challenges remain to ensure that regions have relevant and high levels of skills. Net enrolment in primary education has dramatically increased over the past decades, and Indonesia is today close to achieving universal basic education Indonesian adults attain higher education levels as compared to ten years ago. In 2017, 26% of the Indonesian adult population had upper secondary education, as compared to only 14.1% in 2008. Similarly, the share of tertiary educated adults has almost doubled, from 6.5% in 2008 to 11.9% in 2017.

However, the relevance and quality of education in Indonesia could further improve, bridging gaps between the skills students possess and those needed in the labour market. For example, Indonesia’s performance in the OECD Programme for International Students Assessment (PISA) shows that the competences of students in areas such as mathematics, sciences, and literacy could further improve. Progress between the different editions of PISA has been limited in Indonesia, partly reflecting increases in access to education in Indonesia. There would be room for Indonesia to catch up with other regional economies, such as Singapore, Malaysia, Brunei Darussalam and Thailand. However, Indonesia performs better than the Philippines in all three areas.

Rural and remote provinces, especially those located in the east of the country, are characterised by poorer skills outcomes. For example, about one in five people in Papua are illiterate, making it the province with the lowest literacy rate in the country. Illiteracy is also substantially higher in West Nusa Tenggara then the rest of the country, while in North Sulawesi and the Special Capital Region of Jakarta less than 1% of the population is illiterate. Rural and remote areas are also characterised by poorer quality of skills, as testified by the difference in the OECD PISA scores between villages and large cities. In addition, agriculture remains the main source of employment in rural and remote provinces, compared to manufacturing and services in most western provinces. Informal employment continues to be pervasive across Indonesia. For example, while the Special Capital Region of Jakarta achieves almost 70% of formal employment, in Papua, East and West Nusa Tenggara, formal employment can be lower than 25% of total employment, where almost all employment in agriculture is within the informal sector.

As industry becomes more diversified, job requirements demand more complex and sophisticated skills. Strong vocational education programmes at the local level can play a significant role in helping national economies to adjust to changes in the labour market, advances in technology and challenges associated with globalisation. Across the ASEAN region, many countries are looking at opportunities to promote skill training leading to a job through the vocational education and training system. Many ASEAN countries are interested in work-based training programmes as a means to build pathways for youth into the labour market and to raise the skills levels of the existing workforce. Both occupation-specific and general skills are needed to ensure that workers are able to shift towards skill-intensive, capital driven production across Indonesian provinces. Vocational education and training encompasses a diversity of arrangements including apprenticeships, informal learning on the job, work placements that form part of formal vocational qualifications, and various types of internships.

Consistent international evidence indicates that employment outcomes for vocational graduates in countries with well-developed vocational education and training systems tend to be higher than the national average. For example, within the OECD, the employment rate of the working-age population with vocational education was 75% in 2018, well above the overall average employment rate of 68%.

Local vocational education and training in Indonesia is critical to promote school-to-work transitions

Local vocational education and training programmes can provide students and workers with the skills needed in local labour markets, fostering inclusive growth and reducing disparities both within and across provinces. Vocational education in Indonesia can take place at different levels. Indonesian students aged 16-18 have the opportunity to take on upper-secondary vocational education, while both students and jobseekers can access vocational trainings. Upper-secondary vocational education is provided by vocational high schools (Sekolah Menengah Kejuruan, SMK), which are overseen by the Ministry of Education and Culture, and provide vocational education in several areas, including information and communication technology, engineering, business and management, agriculture and tourism, arts and crafts. On the other hand, non-formal vocational training is mainly provided by work training centres (Balai Latihan Kerja, BLK), supervised by the Ministry of Manpower.

The Indonesian government recognises the importance of vocational education and training in reducing poverty and inequality. The government has introduced pre-employment cards which are vocational training assistance cards that will be given to jobseekers, workers, and those affected by job loss. Initially announced in 2019, the government has anticipated the disbursement in order to tackle job loss challenges linked to COVID-19. A budget of IDR 10 trillion was initially allocated to the programme, which, before the COVID-19 outbreak, was expected to be distributed to 2 million participants in 2020, with 1.5 million participants trained through digital skills programmes and the remaining 500 000 taking face to face training. The government has announced a doubling of the budget in light of COVID-19, with the objective of reaching more than 5 million people.

Participation in VET has increased in Indonesia over the last years, partly as a consequence of the government’s prioritisation of VET as a tool to equip students and jobseekers with the right skills. VET took on a greater role in 2006 when the Ministry of Education developed a strategic plan aimed to tackle unemployment by improving workforce skills, building new schools and converting general high schools into vocational schools. However, the expansion of VET has not been matched by improvements in the quality of education and skills infrastructure. Alongside poor infrastructure, skills gaps have been identified as a major cause of low labour productivity in Indonesia compared to other ASEAN countries. VET curricula are set at the national level and industry needs are often not reflected into VET programmes. In addition, while initiatives have been launched over the years to increase the involvement of employers and industry organisations in the design, development and delivery of VET, their actual involvement remains limited, resulting in programmes that may not be providing students with the skills needed in local labour markets. Teacher quality also remains a major issue as it can vary substantially across schools. These challenges yield vocational graduates with the highest unemployment rates (11.4%) compared to people achieving other levels of education, from general high school (8.3%) to junior high school (5.5%), university (5.2%) and primary school (2.8%).

There is scope for Indonesia to simplify the governance of VET, which would promote stronger co-ordination at the local level

The responsibility for vocational education and training policy in Indonesia is spread across the Ministry of Manpower, the Ministry of Education and Culture, other ministries as well as provinces and cities. Around 20 work training centres are directly administered by the Ministry of Manpower, though other ministries also manage several training centres across the country. The large majority of training centres is, however, under the management of local governments. Education policy is overseen by the Ministry of Education and Culture. Provinces are directly responsible for upper secondary education, including both general and vocational education. However, the management of education policy also appears to be spread across levels of government, as primary and secondary education lies within the responsibility of the city-level government.

This results in a complex multi-governance structure, where roles and responsibilities for vocational education and training are sometimes not clearly defined or overlapping. In addition, vertical and horizontal co-ordination, between different levels of government and different ministries is often challenging, as a systematic co-ordination mechanism for vocational education and training is not in place. Fragmentation and overlapping responsibilities could generate inefficiencies, as different ministries and levels of government adopt a different approach to VET and have different goals. In addition, as different levels of government might not adopt an integrated approach to overall education policy and rather focus on their specific area of responsibility, there seems to be a case for improved synergies.

The government in Indonesia could consider ways of improving co-ordination to establish a coherent VET policy with clear goals and an integrated approach across ministries and levels of government. While moving the responsibility of VET to a single ministry might be considered as an option, the governance of the VET system should be effectively integrated into both the education system, so that VET pathways are well-known in primary and lower secondary education and allow a transition to higher education, and the labour market, being aligned with industry requirements.

The government could therefore consider establishing a VET committee composed of representatives from the different ministries involved in VET policy formulation, as well as employer representatives and unions. An adequate set-up should be chosen to raise the committee’s visibility and give it a strong political mandate. The objectives of vocational education (SMK) and vocational training (BLK) are sometimes overlapping and not harmonised. The committee could also work to harmonise vocational programmes in Indonesia, aiming to avoid duplication and developing programmes based on labour market needs.

Skills Development Centres (SDCs) set up by the Ministry of National Development Planning (BAPPENAS) represent an interesting initiative recently undertaken to tackle co-ordination inefficiencies in vocational education and training policy at the local level. SDCs have been piloted in three cities (Surakarta, Denpasar and Makassar) and four provinces (North Sumatra, Banten, East Java and East Kalimantan) between 2017 and 2018. Going forward, as the ministry plans to extend the project to other cities and provinces, it will be important to ensure an extensive representation of local actors in the field of VET in each city/province.

The government could consider creating an integrated approach to data collection, monitoring and evaluation of VET programmes at the local level

Provinces in Indonesia collect data on vocational students’ performance and outcomes. Data for all provinces is then gathered by the Ministry of Education and Culture. The Ministry of Manpower instead collects data on the number of vocational trainings conducted in work training centres owned by the central and local governments. It collects information on the number of registered jobseekers in online job matching platforms as well as the number of registered job vacancies and the number of workers recruited through the matching of demand and supply. However, data collected by the Ministry of Manpower is often incomplete. For example, some provinces do not report the number of trainees who participated in vocational training. The Ministry of Manpower also fails to collect data on privately-owned vocational training centres and informal apprenticeships, as private companies are reluctant to share information with the government. Furthermore the information on employment outcomes of jobseekers who register in online job matching platforms can be limited, as some provinces only record the number of registered jobseekers but not whether they find a job through the online platforms.

Monitoring of training outcomes is needed to inform evidence-based policy making in vocational education and training in Indonesia. Broadening the scope of data collection and undertaking systematic analysis and evaluation of outcomes of vocational education and training could be an important step to gauge the effectiveness of VET policy at the national and local level in Indonesia. Data collection should be followed by appropriate evaluation on the effectiveness of VET, on their alignment with labour market needs and their ability to match jobseekers to quality jobs. The above mentioned committee could play a role in bringing together different stakeholders, defining responsibilities for data collection and evaluation and fostering a co-ordinated approach to VET and labour market services.

Indonesia could promote more employer leadership in skills training by facilitating employer-led networks (especially among SMEs) at the local level

Vocational curricula are set at the national level by the Ministry of Education and Culture. The specific focus of local vocational schools is then decided by local governments. A relevant issue is that the offer of courses is often driven by local students’ preferences. For example, there is an oversupply of vocational courses in business and management and information and communication technology (ICT), as students and families see these as the most promising sectors.

One of the pre-requisites of successful skills programmes is the engagement of employers in the design and delivery of training programmes. At the local level, establishing partnerships between employers and the vocational education system can help to improve the overall quality of technical education and ensure that graduates are well-placed to transition into the world of work. Involving the private sector can also help to boost capacity, formalise employment arrangements and improve poor perceptions of vocational education that persist across many Southeast Asian countries. Engaging employers requires local leadership, particularly from community and government actors. The active engagement and involvement of employers in the design of training activities would be important for Indonesia to develop a robust skills system. Involving local actors from the third sector is particularly important in Indonesia, where the informal sector is large and traditional engagement mechanisms are unlikely to reach the private sector. Current forms of engagement in Indonesia with employers tend to feature ad-hoc collaborations between individual employers and individual vocational education and training providers. This form of engagement risks resulting in short-term partnerships that may lead to the development of overly firm-specific occupational competences. To ensure that future sectoral skills needs are accommodated, efforts could be made to build relationships among groups of employers, namely chambers of commerce, sectoral organisations and employers’ associations.

International evidence points to the benefits of stimulating employer-led networks that can actively define training requirements and deliver programmes. Employers can play a role to advise other firms about how skills training can help improve their productivity. SMEs often face unique barriers to workplace training opportunities and therefore it is important to look at how policies can be customised to meet their needs. Indonesia could look at the example of Skillnet in Ireland which has been particularly successful in creating an employer-led network (especially among SMEs) to encourage more participation in training opportunities. Another example is Korea’s National Human Resources Development Consortium, considered a case of best practice internationally in promoting networks for skills development. Under this programme, launched in 2001, large firms, employers’ associations and universities are encouraged to set up consortiums with SMEs to share training facilities and equipment, as well as experience and knowhow in vocational training.

A priority could be placed on improving the overall quality of training programmes being delivered at the local level

Teaching and training quality is fundamental for students to achieve effective learning at all levels of education. While the supply of VET providers has increased significantly over the last decade, in several cases, this has not aligned with local demand. Additionally, the quality of VET providers is uneven, affecting training quality across provinces in Indonesia. Accreditation of institutions and quality assurance remain significant challenges, which contribute to the variability of VET across provinces.

Quality teaching could also contribute to making vocational education effective and preparing students for the labour market in Indonesia. Vocational teachers in Indonesia are often recruited by the same school they graduated from following graduation. As a result, teachers often lack professional experience outside of school, resulting in courses that might not address the needs of the labour market. The Government of Indonesia and the Ministry of Education and Culture could consider several options to ensure a high quality of teaching in vocational schools and programming based on industry needs. Although teacher internship programmes exist, they are conducted on an ad-hoc basis. It would be important to mainstream programmes to provide teachers with work experience, which they can then transmit to students. Some initiatives to foster teacher on-the-job experience have been taken, for example in the tourism industry, where a recently launched programme allows vocational education teachers to spend one month of internship at major companies in the accommodation and food and beverage sectors. Such internship programmes could be relevant to upgrade teachers’ skills and keep them up to date with employer skills requirements. Indonesia could learn from the experience of other countries that have been taking positive steps in teachers’ continuous skills development. For example, in Singapore, SkillsFuture SG has put in place an Adult Education Network, i.e. a professional membership scheme that enhances professionalisation and continual skills development of adult educators, which offers a series of continuing professional development programmes and access to resources.

Policy makers could also take steps to allow industry representatives to teach vocational education and could consider including the possession of adequate work experience as a requirement for being able to teach vocational education in a specific field. Vocational trainers could also be hired from local companies on short-term contracts to fill trainer vacancies. In several countries, staff work part time as vocational trainers and part time in industry. This type of arrangement could be particularly beneficial, as trainers would remain up to date with the changing characteristics and skills needs of the industry, therefore providing relevant vocational courses.

The government could look for opportunities to update local school infrastructure while also rationalising new school construction

Appropriate school infrastructure, including both basic and training infrastructure, is needed for the effective delivery of vocational education. Lacking education and training infrastructure represents an issue in Indonesia, with several institutions facing challenges in acquiring and maintaining appropriate infrastructure. Although the number of vocational schools across provinces in Indonesia has dramatically increased over the last years, this has not been accompanied by an increase in the quality of infrastructure and services provided within schools. This is especially the case of rural and remote provinces, where the number of laboratories to undertake vocational trainings are low, and schools also struggle to have access to decent water and medical facilities. The Government of Indonesia has recently taken steps to prioritise the improvement of vocational school’s infrastructure, by placing the revitalisation of vocational school’s existing equipment at the core of the government’s “3R strategy”, which also aims to re-brand vocational education and re-orient students’ course choice.

Transfers from the central government are a substantial source of funding for public SMKs and other vocational institutions. However, the bulk of the general funds transferred from the central government to local governments, including provinces and cities, is devoted to salaries of public officials, including teachers and lecturers, with only a limited share of these grants set aside for education devoted to non-salary purposes. Given this gap, there is a case for some local governments to increase the effectiveness of spending on vocational education and devote more resources to upgrading infrastructure of existing schools.

In addition, while the government has built new vocational schools, contributing to improving access to education for many, some provinces seem to contain too many schools given the number of local vocational students, resulting in gaps in capacity utilisation. For example, the Ministry of Education and Culture reports that more than 7 000 SMK schools in the country have less than 200 students, making it hard for schools to have complete equipment. A case might therefore exist for rationalising the number of schools within some provinces while building new schools in others based on the analysis of the local context. On one hand, this could increase the utilisation of vocational schools, while on the other hand triggering economies of scale in the provision of vocational infrastructure, such as technical laboratories.

Apprenticeship programmes can be used to promote employer participation in training and formal employment arrangements

Apprenticeships can offer an opportunity for young people to combine theoretical learning with on-the-job experience. In Indonesia, apprenticeships have taken a prominent role as a result of the launch of the National Apprenticeship Program Movement in 2016, which aimed to tackle skills mismatches and improve school-to-work transitions by promoting apprenticeships. Formal apprenticeships exist in Indonesia as part of the VET system. They are regulated by the Ministry of Manpower. As skills gaps are identified as a main challenge by employers in Indonesia, apprenticeships could play a role in reducing gaps between labour demand and supply, and be of particular help for young people, as they suffer most from unemployment. Apprenticeships take place in most sectors in Indonesia and across different enterprise sizes. The vast majority of apprenticeships are, however, informal, therefore making it hard to assess the actual diffusion of apprenticeships in the country. Between 2007 and 2013, it is reported that only 100 000 formal apprenticeship agreements were signed throughout the country. Due to the high levels of informality, data on apprenticeships is often limited or missing.

As a first step, the government could mainstream apprenticeships by developing a consistent national framework defining and regulating apprenticeships. So far, a Regulation adopted by the Ministry of Manpower in 2009 defines apprenticeships, but different ministries reportedly establish their own apprenticeship programmes, adopting different definitions and not co-operating with each other. Programmes are industry-specific, and ministries often do not recognise the legitimacy of each other’s certifications.

The Indonesian Employer Organisation (APINDO) is well-placed to engage members in apprenticeships. However, interviews conducted in the context of this report showed that limited organisation funding represents an important challenge, hampering APINDO’s capacity to support the development of apprenticeships. Support measures to increase the capacity of APINDO by expanding membership could be considered. Given the diffusion of informal apprenticeship and traineeship arrangements, especially within micro and small and medium enterprises (MSMEs), an incentives-based approach, including offering opportunities for capacity building to enterprises, access to training, business services and credit, could be explored to encourage them to engage with regulatory authorities on apprenticeship training.