Abstract
The paper attempted to use the February 2007 round of Indonesia’s National Labor Force Survey (Sakernas) for a comparative analysis of wages and benefits of formal and informal workers. While Sakernas was not designed for this purpose, the study explored questions in the existing survey that can be used to distinguish formal and informal workers. Because of data limitation, workers were classified as employed informally or “mixed” – a category composed of workers who cannot be identified, with precision, to be engaged in either formal or informal employment. Given this constraint, informal employment was estimated at the minimum to be at 29.1% of total employment in Indonesia. Informal employment is also highly concentrated in rural areas and is prevalent in agriculture and construction sectors. More women are likely to be informally employed than men, and women generally receive lower pay and are mostly unpaid family workers. To the extent possible the study was able to examine informal employment in Indonesia and to identify the gaps in the Sakernas questionnaire that can be addressed in future rounds of the survey for a successful comparative analysis between formal and informal workers.
Highlights
Many studies have shown that the informal sector and informal employment continue to be a large and even growing component of the economies of developing countries
Unemployment in Sakernas is defined as the “population who are not working at the moment but with a job or will have a job in the future start; or not working but looking for a job or has established a new business/firm; and not working and not looking for a job nor establishing a business/firm due to discouragement” (BPS-Statistics Indonesia 2008)
If disaggregated by class of worker, men would normally be engaged as employees (29.3%), employers assisted by temporary workers (26.0%), or own-account workers (20.1%); women would mostly be unpaid workers (35.2%), employees (24.3%), or own-account workers (17.4%)
Summary
Many studies have shown that the informal sector and informal employment continue to be a large and even growing component of the economies of developing countries. In Indonesia, 70% of the workforce was estimated be engaged in informal employment, mostly in the agriculture sector (Firdausy 2000). This was an immediate result of the 1997 Asian financial crisis, which saw a decline in the number of workers from the urban areas and industrial sector against a concomitant increase in the number of workers in the rural areas and agriculture sector. Badan Pusat Statistik (BPS) or BPS Statistics Indonesia observed this situation to still be true albeit with a lower percentage (64%) of workers in the informal sector for 2006. BPS estimated the GDP share of small enterprises in the informal sector at roughly 38% only
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