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Structural Transformation and Labor Productivity in Indonesia : Where are All the Good Jobs (English)

This paper focuses on the role of structural transformation in creating ‘good jobs’ that provide middleclass wages in Indonesia. Labor productivity growth results from improvements in productivity within sectors of the economy, as well as from structural transformation – the shift of capital and labor to more productive sectors. Building on McMillan and Rodrik (2011) and McMillan, Rodrik and Sepulveda (2017), the authors disaggregate labor productivity growth to assess the contributions of within-sector productivity growth and of structural transformation. They then further distinguish between the sources of structural transformation from the relative growth of employment in more productive sectors, and from the productivity differences between sectors that gain and lose jobs. The authors find that in Indonesia’s case, labor productivity growth has mostly been driven by within-sector improvements, rather than structural change. This is because most new jobs have been in low value-added services, which are not much more productive compared to sectors shedding jobs (largely agriculture). Both demand-side and supply-side interventions are needed to boost labor productivity so that more Indonesians can have middle-class jobs.

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Gil Sander,Frederico Yoong,Pui Shen

Structural Transformation and Labor Productivity in Indonesia : Where are All the Good Jobs (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/662461630655839357/Structural-Transformation-and-Labor-Productivity-in-Indonesia-Where-are-All-the-Good-Jobs