Labor Intensive Sector Investment

Prioritizing labor-intensive sectors to overcome unemployment is indeed more promising. A number of challenges lie ahead.

The Constitutional Court's decision to reject all applications for disputes over the results of the 2024 Presidential Election has been officially adopted. With the 2024 presidential election results being confirmed, the Prabowo-Gibran pair certainly needs to immediately step on the gas and prepare what priority programs need to be developed in the future.

Here, one of the interesting policies of the Prabowo-Gibran couple to be discussed is the plan to revive the labor-intensive sector. In contrast to the previous era when the government tended to prioritize capital-intensive sectors, the new government is said to prioritize labor-intensive sectors which are expected to be more beneficial in labor absorption.

The three main engines driving economic growth, namely the food, energy and manufacturing industry sectors, will be encouraged to develop in order to reduce the potential for growth in numbers unemployment.

Also read: Survive by Continuing to Work

Although the presence of capital-intensive sectors is unavoidable, investments in labor-intensive sectors will be prioritized for development in the country. The aim is to ensure that the development of these priority sectors does not make local residents mere spectators standing outside of the investments that come into a region.

By prioritizing labor-intensive sectors, it is hoped that labor absorption will increase so that additional unemployment rates can be prevented.

FERGANATA INDRA RIATMOKO

Workers are working on a drainage improvement project under the intensive work program on Soekarno-Hatta Street, Magelang, Central Java, on Wednesday (July 14, 2021). The presence of the intensive work program helps the community to earn income.

"Mismatch"

If efficiency is the sole priority, the capital-intensive sector is the most effective solution to drive economic growth. By avoiding excessive involvement of manual labor and relying more on highly educated professional labor, the production activities of the capital-intensive sector will undoubtedly run smoother.

In industrial centers that use high technology, productivity levels can run optimally because they are supported by trained professional staff.

The problem is, where are the positions and opportunities for Indonesian workers, who on average still have lower middle school education? Whether we admit it or not, the labor force profile in Indonesia is still largely dominated by high school graduates and below.

Capital-intensive industries do provide added value and absorb highly skilled labor. However, considering the fact that in Indonesia the portion of middle to lower-educated workforce is still more than 50 percent of the total workforce, their chances of being absorbed in capital-intensive sectors are very small, not to mention non-existent.

The problem is, where are the positions and opportunities for Indonesian workers, who on average still have lower middle school education?

As an example, investment in the mining sector, while on one hand contributes significantly to the growth of gross domestic product (GDP), on the other hand, this sector has not contributed much to employment absorption.

In our experience, we have always been faced with the issue of a very limited workforce absorption capacity. In various media outlets, job vacancies are still being offered. However, all of the required qualifications for such positions are very high and far from the real condition of the Indonesian workforce. We need to prioritize local workers.

The problem we face in creating job opportunities is the continuous decline in the ability of the economy sector to obtain capital in creating new job opportunities because the incoming investments are not labor-intensive.

When there is a mismatch between the qualifications of the workforce required by the industrial world and the socio-cultural profile of the existing workforce, don't be surprised if what happens next is that the list of job seekers continues to grow.

Also read: Expectations for Continuously Increasing Job Opportunities

Although the government has developed vocational schools and vocational majors to produce job-ready graduates, the results have been far from expectations. Many vocational graduates actually add to the unemployment rate because their competence does not meet expectations.

Due to their inadequate skills, many vocational school graduates end up facing the same problems as general graduates of junior high and high school in the workforce.

In Indonesia, in various regions, job opportunities created from the development of capital-intensive sectors are generally becoming increasingly difficult to accommodate the 7.9 million unemployed workforce and an additional 2 million new workforce entering the labor market each year. Most citizens who only have a lower-middle education tend to choose to become informal workers who are unprotected and vulnerable to mistreatment.

When a country prioritizes attracting investment and pursuing economic growth, what happens is the marginalization of local labor. They are generally not absorbed into the industrialization that enters their area and only become spectators who do not participate in the development that is taking place around them.

The "post-industrial" era

In the post-industrial era, the fate of Indonesian job seekers, most of whom are dominated by people with less education and skills, will certainly be increasingly left behind and marginalized. This happens especially if the government still prioritizes investment in capital-intensive sectors that arrogantly greet local residents.

Some time ago, when PT Freeport Indonesia was invited to visit the JIIPE (Java Integrated and Industrial Port Estate) area in Gresik, East Java, there were at least 30 tenants operating in that area. What's interesting is that all of the tenants are capital-intensive industries that absorb very little local labor.

During the infrastructure development period, there may be hundreds or even thousands of unskilled workers who can be absorbed. However, when the industry starts to operate, it can be certain that the absorbed workforce is a group of highly educated professionals, and their numbers are certainly very limited.

Also read: Vocational Education and Alignment of Future Job Skills

In capital-intensive industrial sectors, factory operational mechanisms generally rely more on digitalization support. The rapid development of information technology, artificial intelligence, robots and automation are tools that have replaced and eliminated the role of manual labor.

To operate a factory that is capable of carrying out maximum production activities, there is no longer a need for hundreds or thousands of unskilled workers, as it can be handled by just a dozen professional workers.

Digital transformation and the development of capital-intensive sectors on one hand offer promising acceleration of production growth, but on the other hand actually dampen the potential of existing local workforce.

The industrial world's need for highly qualified workers who are able to operate sophisticated technology means that workers with little or no education can only enter as security or cleaning service workers. This is a reality that inevitably occurs when development relies more on capital-intensive sectors rather than labor-intensive sectors.

KOMPAS/PRIYOMBODO

Factory workers in the footwear industry scattered out of the factory during lunch break in the Gerendeng area, Karawaci, Tangerang city, Banten on Monday (14/11/2022).

Challenges of labor intensive sectors

On paper, the new government's efforts to prioritize labor-intensive sectors to address unemployment issues are indeed more promising. However, the development of labor-intensive sectors does not mean it is free from problems. There are several challenges that must be anticipated by the Prabowo-Gibran government if they truly want to develop the labor-intensive sector.

Firstly, how can we ensure that the operational activities of labor-intensive sectors are able to balance productivity with the welfare of their workers? It is no secret that the productivity of labor-intensive sectors does not always correspond to an improvement in the welfare of their workers.

When a company undergoes losses, factory management quickly argues that the company's condition is not good and therefore wages cannot be increased. However, when the company is making profits, the company's management never announces it to its employees. The company continues to expand when making a profit, but when facing losses, they ask their workers to understand.

Also read: Labor Intensive Investment is a Priority for the Prabowo-Gibran Regime

Secondly, there needs to be a guarantee of balance between limitations on workers' strike or protest activities and the establishment of a fair minimum wage. It is impossible to prohibit workers from being resistant and staging street protests if, at the same time, they become victims of corporate exploitation. As long as there is a guarantee of balance between political rights and the right to obtain welfare, it can be ensured that labor unrest can be suppressed.

Thirdly, there needs to be support for adequate infrastructure availability in various regions so that incoming labor-intensive investments can operate efficiently, without being hindered by inadequate infrastructure. Do not let it happen that labor-intensive companies entering cannot produce commodities that are able to compete in the global market due to difficulty in finding transportation, raw materials, and efficient routes in distributing the produced commodities.

Prioritizing labor-intensive sectors is a necessity, especially when we consider Indonesia's labor profile that is still dominated by less educated workers. However, the sustainability of labor-intensive sectors certainly requires prerequisites that need to be supported to prevent them from collapsing halfway. What is your opinion?

Bagong Suyanto, Dean and Professor of Economic Sociology, FISIP, Airlangga University

DOK. PRIBADI

Bagong Suyanto