Avenues for reducing unemployment in Indonesia

The authors of this paper develop a new model to examine the impact of different sectors and
locations of economic growth on urban, rural, and national employment using a provincial level
panel dataset. A number of conclusions are presented, including:

 most of the unemployed are young, highly educated, and inexperienced, and still live
with their parents - the best path to reduce unemployment is the services sector since it
absorbs most of the highly educated workers
 agriculture still dominates employment in rural areas - in urban areas most workers are in
the services sector, although there is sizable and expanding share of the low educated
who are engaged in agriculture. Industry, is the second highest employer in urban areas
but plays a minimal role in rural areas
 not every sector has the same growth elasticity of employment - for urban areas, the
highest employment-generating sector is services, while agriculture is still the champion
to increase rural employment.
 in terms of rural-urban linkages, none of the rural sector growth has a significant impact
on urban employment, while the authors find that urban industrial growth reduces rural
employment.

The authors recommend that the government, in its quest to reduce unemployment, should
ensure that urban services and rural agriculture enjoy unfettered long-term growth. Providing any
other types of job, especially those with below market wages, or focusing on the wrong sector in
a location would not be effective in reducing unemployment.