6 - The Labour Market Shock and Policy Responses to the Coronavirus Pandemic

Summary

Abstract

Like in the Asian financial crisis of 1998, many jobs have been lost during the first year of COVID-19, especially for young people locked out of the labour market. The informal sector seems to have been hit much harder than during the Asian financial crisis, partly because of mobility restrictions and lockdowns. So too have industries heavily dependent on international markets, such as tourism and labour-intensive manufacturing, while non-tradeable transport and construction have also suffered badly. Nonetheless, despite the severity of COVID-19, the Indonesian economy and labour market are doing better than several more globally networked countries in Southeast Asia. Extensive use of the internet has facilitated work from home and skills development, such as through the new Kartu Prakerja (Pre-employment Card). The Unified Database has facilitated government help for the poor, despite delays in disbursals. However, the wide geographic spread of COVID-19 and its effect on labour supply makes support for jobs costly and uneven. Although off to a rocky start in October 2020, reforms seeking to promote investment and employment in the omnibus law Cipta Kerja have the potential to create better jobs during the recovery if managed more wisely.

Introduction

In the first six months of 2020 the spread of COVID-19 was already a severe setback to labour markets in countries across the globe (IMF 2020a). Indonesia has not been spared, with gross domestic product (GDP) growth declining by a huge 5.3 per cent in the second quarter of 2020. Measures to control the spread of COVID-19—social distancing, lockdowns and restrictions on mobility—that were introduced from April to June 2020, had significant effects on economic activity, which have been reflected in job and labour incomes.

In this chapter I explore Indonesia's labour market adjustments in the first eight months of 2020, covering the six-month period from March to August when COVID-19 spread across the country. It is clear that the impact of COVID-19 on jobs and hours of work—and hence on labour earnings—was already severe in the period of large-scale social restrictions (pembatasan sosial berskala besar, PSBB) from March to June 2020, even though the database for evaluating these effects on labour is slim.