Investing in Indonesians

Education policy reforms required to link workforce with users in industry, says ADB

By Ismira Lutfia Tisnadibrata
Tuesday, May 16, 2017

Not having a workforce with the skills that employers seek will constrain economic growth, according to the Asian Development Bank (ADB), which projects that Indonesia’s economy will grow by 5.1 percent this year and 5.3 percent in 2018, far below the government’s long-standing goal of 7 percent growth.

This will continue to be a matter of concern if Indonesia wants to raise its status and become a higher middle-income country, ADB economist Emma Allen said during the launch of the bank’s flagship publication, the Asian Development Outlook (ADO) 2017 last month.

This was echoed recently by President Joko Widodo, who said that the Indonesian government will continue to focus on issuing policies that ensure a link and a match between vocational training and industry and produce greater qualified human resources.

He said that having qualified human resources is one of the pillars of government programs for economic equity in the country, which the government aims to develop by strengthening vocational training, vocational schools, entrepreneurship and job markets.

“We will strengthen industry-based vocational programs, which are closely associated with existing vocational schemes such as in the automotive, tourism and transportation industries, so our workforce would not only be smart in class but also qualified for the job,” he said during the inauguration of a car manufacturing plant in Bekasi, West Java.

President Joko added that Indonesia needs to have qualified human resources that investors look for when they invest in the nation and match with the particular industry’s needs.

The ADB outlook says that almost 60 percent of workers in Indonesia, especially older ones, have not completed high school, despite the fact that the nation’s workforce has improved its educational attainment in recent years, following the government’s commitment to allocate 20 percent of its budget or 3.4 percent of gross domestic product (GDP) to education since 2002. In its 2017 budget, the government committed Rp416 for education.  

While most of Indonesia’s young people aged 15-24 years have not completed nine years of schooling, one in four has not completed the full 12-year cycle before university, according to the report.

This corresponds with data from the United Nations Development Program’s Human Development Index (HDI), which ranks Indonesia 113th out of 188 countries in its latest HDI report released in March.

The 2016 HDI said, on average, Indonesians go to school for only 7.9 years out of the 12.9 expected years of schooling and there is only one teacher available for every 17 primary school students in a given school year.

“A reflection of low educational attainment is that half of the people employed today can be considered under qualified for their jobs,” Allen said.

Central Statistics Agency (BPS) data released in November 2016 showed that, as of August 2016, there were 118.41 million people working, out of the 125.44 million people in the workforce, while the remaining 7.03 million were still unemployed.

But the ADB says Indonesia can address the skills gap partly through workplace training for skills development, which, unfortunately, many Indonesia employers and workers invest very little in.

Only a small percentage of workers continue training once they find employment, partly due to the fact that only 7.7 percent of firms offer formal training, which is one of the lowest rates among countries surveyed by the World Bank’s enterprise survey.

The ADB suggests that labor regulations such as high severance pay, which encourages hiring people on short-term contracts, could be a reason why private enterprises limit their investment in human capital.

Winfried Wicklein, ADB’s Country Director for Indonesia, said that making spending on public education more efficient and investing more in skills development at work could be the way to address the problem.

But education spending should not only aim to upgrade school infrastructure and training equipment, but also raise the quality of instruction in schools by training teachers and improving the curriculum.

The ADB recommends that in order for graduates to meet the demands of a labor market in a middle-income country, educational reform programs should facilitate much greater engagement among government, employers and training providers, with particular focus on technical and vocational education training.

Industry associations also need to play a stronger role by developing good collaboration models that can evolve into industry-wide skills development programs, with cost-sharing initiatives to support more and better skills training, while providers of education and training should have more autonomy to enable them to respond to industry needs. They should also be equipped with adequate financial and technical resources.

“Close engagement with the private sector is needed to ensure that graduates meet evolving skill needs as Indonesia moves toward higher middle-income status,” Wicklein said.

Improvements to regulations and strengthened collaboration for demand-based skills development could lure the private sector into shouldering more responsibility for workers to get quality training and to acquire new skills for a fast-modernizing economy.

The ADB said that these measures to close the skills gap could complement recent policy initiatives to increase public investment in infrastructure and improve the business environment, and consequently help Indonesia to be more competitive and spur new drivers for growth.

Following President Joko’s comments in Bekasi, the trade ministry responded by facilitating 117 companies to forge cooperation with 389 vocational high schools in Central Java and Yogyakarta.

“This is also a mandate of the Presidential Instruction No. 9 in 2016 about revitalizing vocational high schools, and to prepare skilled workers that match the industry’s needs,” Industry Minister Airlangga Hartarto said after the launch of an industrial vocational program in both provinces on April 21.

Airlangga said that for the next 10 years, Indonesia will enjoy a demographic bonus, whereby the majority of the population would be of productive age.

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