Employment and Skills Strategies in Indonesia

Executive Summary

After decades of structural transformation, Indonesia is the largest economy in Southeast Asia, with a GDP of over USD 1.1 trillion (current prices as of 2019). Economic growth has been accompanied by substantial progress in expanding access to skills for all. Poverty in Indonesia declined from a peak of 24.2% in 1999 to 9.2% in 2019. Human capital has been identified as one of five priorities of the Government of Indonesia’s National Medium-Term Development Plan (RPJMN) for 2020–2024 and the country’s long-term vision, Visi 2045, aims for Indonesia to join the world’s five largest economies by 2045.

To put its economy in the high-income group by 2045, it is critical that all people and places across Indonesia have access to quality job opportunities. The geography of Indonesia presents a number of challenges when designing and delivering policies. Indonesia has 34 provinces with large variations in labour market and training outcomes. For example, the unemployment rate in 2019, before the COVID-19 pandemic outbreak, ranged from a low of 1.5% in Bali to a high of 8.1% in Banten. Recognising the importance of place-based policies, the government has undertaken a series of decentralisation reforms that started in the late 1990s. These reforms have delegated more autonomy to provinces and districts in the management of employment and skills programmes.

Despite long-standing progress, COVID-19 has changed the economic situation. According to estimates from the Asian Development Bank, job losses from COVID-19 could range from a low of 1 million in the best case to a high of 7 million in the worst case scenario. Poverty is expected to jump and the impacts of COVID-19 are likely to be disproportionately felt by women and young people. Tourism and hospitality industries have experienced already massive declines, with the hope that they can rebound in 2021. Many of the jobs in these sectors are also informal, entailing little social protection or income support for these workers.

While addressing the shock from COVID-19 will be a clear priority, there is also an opportunity to use the crisis to build the capacity of local employment and training organisations. They are on the front lines of the crisis response and will be essential to increase the resilience of all Indonesian provinces against future economic, social and environmental disruptions. The Government of Indonesia has already introduced three stimulus packages to try and cushion the economy from the impacts of COVID-19. This includes advancing the disbursement of pre-employment cards to help jobseekers and laid-off workers access a broad range of training. The pre-employment cards also aim to address skills shortages across various sectors, which have become a challenge with the training system not producing the skills required by industry.

There is a clear opportunity to transform local economies across Indonesia by expanding access to job training. Labour market services are under-developed and could play an important role in supporting individuals to participate in the labour market. Well-designed vocational education and training (VET) programmes can also help people make a smooth transition to employment or retrain to transition into a new job. The following recommendations emerge from this OECD/ADB report focusing on building the implementation capacities of employment and training providers at the local level:

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

• Internet, smartphone penetration and technological innovations provide opportunities to leapfrog ahead in expanding the scope and reach of labour market services: The recently introduced pre-employment card, kartu prakerja, builds on internet and smartphone penetration to provide training to young people and the unemployed. The government could build on this example as well as the 3 in 1 Kiosk to explore further opportunities of how technology can be harnessed to expand the provision of online employment and training services.

• Strengthen the institutional capacity of local employment offices: The Ministry of Manpower could ensure that front-line staff have the right skills and are well-trained to conduct mentoring and counselling programmes with jobseekers and engage with local firms.

• Build stronger engagement with local firms to promote the supports and services offered by local employment offices: The Ministry of Manpower could create an outreach function, which would assist in identifying job vacancies and matching people to firms. There could be dedicated officers within local employment offices who focus on outreach.

• Target local employment programmes to youth and other disadvantaged groups: An online campaign, as well as closer co-operation between the Ministry of Manpower and the Ministry of Education and Culture, could be instrumental in providing students with access to labour market information to inform their study choice or help them find a job.

Local strategies to build skills across Indonesian provinces

• Simplify the governance of VET to promote stronger co-ordination at the local level: While moving responsibility to a single ministry might be considered as an option, the overall governance of VET should be simplified so that these skills pathways are well known in primary and lower secondary education and allow a transition to higher education and the labour market, aligned with industry requirements.

• Create an integrated approach to data collection, monitoring and evaluation of VET programmes: Broadening the scope of data collection on VET trainees and their employment outcomes, and undertaking systematic analysis and evaluation of vocational programmes should be a relevant step to gauge the effectiveness of VET policy at the national and local level.

• Promote more employer leadership in skills training by facilitating employer-led networks (especially among SMEs) at the local level: Efforts could be made to build relationships among groups of employers, namely chambers of commerce, sectoral organisations and employers’ associations to guide the development and delivery of training.

• Place a priority on improving the overall quality and relevance of training programmes being delivered at the local level: Indonesia could allow local industry representatives to teach programmes or enable those with adequate work experience to teach vocational education in a specific field. VET accreditation and quality assurance could also be strengthened to reduce variability in training quality across provinces.

• Use apprenticeship programmes to promote training, while also working with firms to formalise training arrangements: The government could develop a consistent framework defining and regulating apprenticeships. An incentives-based approach, including offering opportunities for capacity building to enterprises, access to training, business services and credit could be explored to encourage enterprises to engage with regulatory authorities on apprenticeship training.