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The rapid growth of the 1990s, fueled by foreign investment and export industries, was achieved at the expense of the
workers, according to many observers. Foreign employers were enticed with promises of cheap labor and the worker
exploitation went unnoticed.
The 1997 financial crisis and its social and economic effects had a great impact on the Indonesian workforce. By early 1999,
it is estimated that at least half a million people had lost their jobs in the formal sector, and a million more in small
scale industries became unemployed as demand for goods decreased and foreign investment dried up. Real wages in the formal
sector fell dramatically.
The Indonesian workforce proved to be resilient and unemployment did not increase as significantly as analysts feared. As
export-driven employment declined, the workforce shifted away from the most affected sectors and towards self-employment,
family business and agriculture. However, inflation lowered the purchasing power of workers resulting in an increase in
poverty. Young people were withdrawn from schools to work and contribute to their family’s income.
For more information see the Poverty Brief.
Indonesia has since begun its economic recovery, and the political situation has changed significantly. In 1998, strict
controls over organized labor were eased and many labor movements have sprouted as the workers begin to express their
grievances and demand their rights. The Indonesian government has attempted to establish more effective provisions for the
enforcement of workers’ rights and working conditions. Although the efforts of the government and the unions have led to
improved conditions, the still weak economy and the youth of the labor movement has made significant real progress difficult
and slow.
For more information, please see Labor Market Transitions of Men and Women During an Economic Crisis: Evidence from Indonesia.
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