The Role of agricultural sector to absorb employment in response to the 1997 economic crisis in Indonesia

Abstract

While the initial impact of the economic crisis on employment was faced by a few sectors of the economy, the real effect gradually spread to cover almost all branches of the economy. It appears that the employment effect was not manifested in terms of persistent high unemployment, but has mostly been expressed: first, by a large movement of workers from manufacturing, construction, modern trade and other services into agriculture and possibly informal sector employment at reduced wage rates. Second, by an overall decline of real earning for virtually everyone, whether in the effected sectors or in others. Agricultural became a key sector to absorb employment from the job losses workers caused by the crisis. However, the impact of the crisis hit through reducing real wages and increasing living standards. It is one evidence that agricultural sector has a key role in the Indonesia’s macro-economy. Therefore the Government of Indonesia should more encourage and develop this sector through its policies There are still significant policy and institutional constraints on efficient growth and development that must be addressed. Market reform in general are needed in agriculture to reduce the public burden in the face of the economic crisis, to reduce high distribution costs and improve allocation efficiency. They can lead to increase production, higher productivity, higher rural wages and employment and improve use of natural resources.