Skills for the Labor Market in Indonesia

Skills for the Labor Market in Indonesia

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In Indonesia, the past two decades have been a time of great progress but also massive transformations and abrupt setbacks. In this context, this book reviews the main characteristics of - and trends in - demand for skills in Indonesia. It seeks to document the existence of a possible skills mismatch between employer demands and the available supply, the contribution of the education and training sector to this mismatch, and possible measures to improve the education and training system's responsiveness to what the labor market and the economy need.
In today's job market in Indonesia, there appears to be a premium on theoretical and practical knowledge of the job. While skills do not appear to be yet among the most important constraints for the economy, the situation is different for larger more export-oriented manufacturing firms. Subjective assessments of difficulties of matching needs with available skills provide evidence that skills are becoming an issue overall in Indonesia.
The widest gaps across professional profiles are for English and computer skills followed by thinking and behavioral skills. Theoretical and practical knowledge of the job are also considered to be weak. There are important gaps in creativity, computing and some technical skills for young workers. English remains the largest gap.
Five general skill related priorities can be highlighted for Indonesia. First, the country needs to improve skill measurement to get a fuller understanding of skill needs and gaps. Second, it is urgent for Indonesia to address the still unsatisfactory quality and relevance of its formal education, including higher education. Third, the country needs to set-up multiple pathways for skill development. Fourth, the country needs to develop an integrated approach to tackle skill development for youth. Fifth, Indonesia should also tackle labor market constraints which affect the skill matching process.

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DIRECTIONS IN DEVELOPMENT
Human Development
Skills for the Labor Market
in Indonesia
Trends in Demand, Gaps, and Supply
Emanuela di Gropello, with Aurelien Kruse and Prateek TandonSkills for the Labor Market in IndonesiaSkills for the Labor Market
in Indonesia
Trends in Demand, Gaps, and Supply
Emanuela di Gropello
with Aurelien Kruse and Prateek Tandon© 2011 The International Bank for Reconstruction and Development / The World Bank
1818 H Street, NW
Washington, DC 20433
Telephone: 202-473-1000
Internet: www.worldbank.org
All rights reserved
1 2 3 4 14 13 12 11
This volume is a product of the staff of the International Bank for Reconstruction and
Development / The World Bank. The findings, interpretations, and conclusions expressed in
this volume do not necessarily reflect the views of the Executive Directors of The World
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All other queries on rights and licenses, including subsidiary rights, should be addressed to
the Office of the Publisher, The World Bank, 1818 H Street, NW, Washington, DC 20433,
USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org.
ISBN: 978-0-8213-8614-9
eISBN: 978-0-8213-8615-6
DOI: 10.1596/978-0-8213-8614-9
Library of Congress Cataloging-in-Publication Data
Di Gropello, Emanuela
Skills for the labor market in Indonesia : trends in demand, gaps, and supply / Emanuela di
Gropello, Aurelien Kruse, Prateek Tandon.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-8213-8614-9 — ISBN 978-0-8213-8615-6 (electronic)
1. Labor market—Indonesia. 2. Skilled labor—Indonesia. 3. Occupational training—
Indonesia. I. Kruse, Aurelien. II. Tandon, Prateek. III. Title.
HD5824.A6D54 2011
331.1209598—dc22
2011005089
Cover photo: © BAGUS INDAHONO/epa/Corbis
Cover design: Quantum ThinkContents
Foreword xvii
Acknowledgments xix
Currency Equivalents xxi
Abbreviations xxiii
Overview 1
Demand for Skills in Indonesia 5
Skill Gaps 10
Gaps in the Quality and Relevance of Education
and Training 21
Main Priorities and Policy Implications 30
Notes 38
References 39
Chapter 1 Introduction 41
Purpose and Conceptual Framework 44
Outline and Sources 48
Notes 50
References 50
vvi Contents
Part I Demand for Skills and Skill Gaps in Indonesia 51
Chapter 2 Trends in the Demand for Skills in Indonesia 55
Educational Attainment and Private Returns
to Schooling 56
Other Employment Outcomes 63
Demand for Skills according to Employers 67
Demand for “Actual Skills”: Looking
beyond Educational Attainment 76
Emerging Policy Implications 86
Notes 87
References 88
Chapter 3 Drivers in the Demand for Skills in Indonesia 91
Quantitative Evidence from the Manufacturing
Sector (Firm Surveys) 92
Qualitative Evidence from the Service and
Manufacturing Sectors: Skills, Export
Orientation, Technology, and Other Factors 101
Expected Trends in Demand for Skills 108
Emerging Policy Implications 112
Notes 113
References 114
Chapter 4 A Skill Mismatch? 115
Macro Trends 116
Difficulties Finding Skills 118
Reasons for Difficulties in Skill Matching 120
What Does Vacancy Analysis Reveal? 125
Toward a Better Understanding of Quality
and Relevance Gaps 129
Emerging Policy Implications 147
Notes 148
References 149
Part II An Overview of the Indonesian Skill
Development System 151
Conceptual Framework for the Supply of Skills 153
Note 156Contents vii
Chapter 5 The Ability to Produce a Skilled Labor Force:
An Overview of the Indonesian Formal
Education Sector 157
Structure and Basic Outcomes of the Formal
Education System 158
Strengths and Weaknesses of Secondary and
Tertiary Education 172
Notes 204
References 205
Chapter 6 Training the Unskilled and Updating the Skills
of the Labor Force: A Brief Overview of the
Informal Education and Training System and
On-the-Job Training 207
Informal Education 208
Postemployment Firm Training 218
Notes 228
References 228
Appendix A Main Tables 231
References 246
Appendix B Empirical Framework for Estimating the Effects
of Openness on the Demand for Skills 247
Note 249
References 249
Index 251
Boxes
O.1 Where Are Skills Derived From? 4
1.1 Skill Conceptual Framework 46
1.2 The Employer and Employee Skill Surveys, 2008 48
5.1 Basic Facts on the Dual System of Education Program
for Technical and Vocational Education and Training 178
5.2 A Successful Example of Demand-Driven Vocational
Schools: The Case of Chemical-Analyst V
Secondary Schools 179
5.3 Structure of the Higher-Education Sector in Indonesia 190viii Contents
5.4 A Snapshot of Higher Education and Innovation
in Indonesia 198
5.5 University-Industry Links in Beijing 202
6.1 Structure of the Informal Education Sector in Indonesia 209
6.2 Introducing Skill-Based Competencies in Indonesia 215
6.3 National Training Funds to Promote Skill Development 222
Figures
O.1 Framework of the Book 3
O.2 Importance of Core Subject-Based and Generic Skills 6
O.3 Employees’ Perceptions of the Importance of Skills 7
O.4 Importance of Behavioral Skills, by Sector 7
O.5 Importance of Skills in the Export and Nonexport Sectors 8
O.6 Drivers of Firms’ Increased Use for Skills 8
O.7 Changes in Work Organization Driving Demand for Skills 9
O.8 Employers’ Perceptions of Skill Requirements in the
Next 10 Years 10
O.9 Difficulties in Filling Vacancies, by Sector 11
O.10V, by Export Orientation 12
O.11 Gaps in Core Generic and Subject-Based Skills 13
O.12 Skills Most Needed and Most Lacked, according to
Younger Workers 14
O.13 Workers’ Perceptions of Educational Preparedness
for Their Jobs 15
O.14 Programme for International Student Assessment:
Math Results, 2006 16
O.15 TIMSS Math Results, 1999–2007 17
O.16 Causes of Skill Shortage 17
O.17 Methods of Assessing Applicants’ Skills 18
O.18 Education of Net Hires, by Sector 19
O.19 Trends in Education Premiums and Educated Workforce 19
O.20 Tertiary Gross Enrollment Rates in Selected Countries,
2007 or Latest Year Available 20
O.21 Labor-Market Outcomes of Tertiary Graduates
in Selected Countries, 2008 21
O.22 Quality of Secondary Education Graduates 22
O.23 Quality of Tertiary Education Graduates 23
O.24 Major Strengths of Vocational and General
Secondary Schools as Perceived by Employers 23
O.25 Major Weaknesses of Val erceived by Employees 24