Shaping The Future of Employment In The New Era of Digital Technology

Director of Labor and Employment Creation Ministry Of National Development Planning/Bappenas

Jakarta, 19 July 2018

INDONESIA ALREADY FACING THE LABOR STRUCTURAL TRANSFORMATION

The service sector proved able to absorb the formal workforce. The high proportion

of formal service sector workers is one of them due to the rapid development of the

digital economy that provide alternative formal employment opportunities.

It is also indicated as a result of the rapid development of the digital economy that

provide alternative formal employment opportunities, such as courier services and

online transport and trade services.

Sumber: Sakernas periode Agustus

1,22 1,80

2,62

0,83

-0,39

-1,48

0,57

-1,67

0,08 0,11

0,65 0,32

0,60

-0,39

0,67

2,16

2014 2015 2016 2017

-3

-2

-1

0

1

2

3

4

1 2 3 4 5 6 7 8 9 10 11 12

Mil

lio

n W

ork

er

Groeth of labor

Pertanian Formal Industri Pengolahan Formal

Jasa & Lainnya Formal Pertanian Informal

Industri Pengolahan Informal Jasa & Lainnya Informal

13%

59% 69% 92%

55% 43% 34% 45% 36%

84% 98% 74% 79%

100% 98% 91% 55%

11% 55% 65%

88% 64%

41% 34% 42% 34% 72%

98% 79% 76%

100% 98% 94% 65%

11%

59% 65% 89%

46% 45% 34% 44% 34% 71%

98% 77% 80%

100% 98% 90% 57%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Proportion of Labor based on 17 sectors and Formal Informal Status

2015 Formal 2015 Informal 2016 Formal 2016 Informal 2017 Formal 2017 Informal

2017

2016

2015

2

3 POTENTIAL OF DIGITAL ECONOMY IN INDONESIA

Rapid Development of Digital Economy in Indonesia

E-commerce Retail Transaction Value in Indonesia 2013-2018

Notes: *projection e-Marketer, 2015 Source: Central Bank of Indonesia & Ministry of Communication and Information, processed

Internet users in Indonesia keep increasing

70% searching for online shopping information (2015)

7,4 million online shoppers with 79,8% individual buyer (2015)

Transaction value up to US$3,5 miliar (2015) with the most popular one (Clothes: 67,1%)

Top 10 Countries with Highest Internet User

69,9

71,7

93,6

104,5

118,4

132,7

139,1

236,9

462,1

731,4

0 100 200 300 400 500 600 700 800

Mexico

Germany

Nigeria

Russia

Japan

Indonesia

Brazil

United States

India

ChinaMillion internet users

Source: Internet World Stats, March 31 2017

71,2 million

88,1 million

93,4 million

2013

2014

2015

1,8 2,6 3,5

5,3

8,2

10,9

0,0

2,0

4,0

6,0

8,0

10,0

12,0

2013 2014 2015 2016* 2017* 2018*

E-retail Sales (in billion USD)

16% 14% 7%

95% 87% 69%

High-Web Medium-Web Low-Web and No-Web

Historical Three-Year Sales Growth of SMEs

Percentage of SMEs that added jobs during the last three years

The Internet’s Effects on SMEs (2016 - Projection)

Source: Boston Consulting Group, 2012

4 DIGITAL ECONOMY LANDSCAPE

Source: IDEA, 2017

US$ billion (Rp190 trillion)

FINANCIAL TECHNOLOGY (FINTECH)

E-COMMERCE

ON DEMAND SERVICES

INTERNET OF THINGS (IOT)

Digital economy has the potential to reach US$130 billion by 2020.

DIGITAL ECONOMY LANDSCAPE

Transaction projection 2016

Transaction nominal per individual 2014

14,5 US$ (Rp747.000)

56,98

Players

Transaction potentials

US$ billion (Rp104 trillion)

8 2013

US$ billion (Rp261 trillion)

20 2016

US$ billion (Rp1.700 trillion)

130 2020

Players

High market demand

million Internet users 132,7 million

Smart phone users 63,4

Players

Asia Pacific market potentials

US$ billion 250 2015

US$ billion 583 2020

Players

5 DIGITAL ECONOMY: GROWTH AND POTENTIALS…

• ICT sector grows more than 9% and continues to do so for the last 2 years.

• Transportation and warehousing sector also grows fast, i.e. 8%, which indicates the growth of start-up e-commerce and transportation, such as Gojek,

Grab, Uber.

• FinTech industry grows positively. There are 184 FinTech companies; 42% are payment-based FinTech companies, 18% are loan-based, and others are

aggregators and crowdfunding.

• In 2016, revenue of e-commerce amounted to USD 6 billion, and 78% of current Internet users made online purchases.

• E-commerce is expected to grow by approximately 18% p.a. in the next five years, reaching a market volume of USD 16.4 billion by the end of 2020.

GDP 2017 Annual

6 DIGITAL ECONOMY HAS POTENTIALS:

ON GROWTH AND JOB CREATION…

Digitalization

Automation

Artificial Intelligence

Job lost ≠ unmployment Technology encourages the creation of new, more

productive and larger amounts of new jobs

Sumber: EMSI; Oxford Economic Forecasting; US Bureau of Labor Statistics; McKinsey analysis, Future of Jobs Report, WEF

FARMERS, FISHERS,

BREEDERS,

HANDICRAFT

WORKERS

TAILOR, STATIONERY

MACHINE OPERATOR,

LAS & SOLDER

SALES, CASHIER,

TICKETS

CONSTRUCTION

WORKER,

BLACKSMITH

ADMINISTRATION

WORKER,

WAREHOUSE CLERK,

etc

Potential automation

By occupation

49% AGRICULTURE, FORESTRY, FISHERY,

HUNTING

65% PROCESSING/

MANUFACTURING

53% RETAIL TRADE

45% CONSTRUCTION

64% TRANSPORTATION AND

WAREHOUSE

Potential automation

by sector

McKinsey (2016) estimates that digital

technology will able to create 3,7 million

jobs by transforming informal jobs,

employing inactive population, and reducing

unemployment. It will also increase Indonesia’s

GDP by USD35 billion in 2025.

Indonesia still left behind for: labor market efficiency pillar. From the 137 nations, Indonesia is at 96th position.

Indonesia’s competitiveness pillar

7 POSITION OF INDONESIA IN THE GLOBAL COMPETITIVENESS RANK (1/2)

96

84

65

57

48

47

36

26

2

0 50 100 150

Indonesia

Filipina

Thailand

Vietnam

Kamboja

Brunei…

Laos

Malaysia

Singapura

Labor Market Efficiency Ranking

Source: Global Competitiveness Report, World Economic Forum, 2017-2018

Source: Global Competitiveness Report, World Economic Forum, 2017-2018

8 POSITION OF INDONESIA IN THE GLOBAL COMPETITIVENESS RANK (2/2)

85

67

51

41

39

36

33

20

2

0 20 40 60 80 100

Vietnam

Kamodia

Laos

Indonesia

Brunei

Thailand

Filipina

Malaysia

Singapura

Cooperation in labor-employer relations

2017-2018

2016-2017

103

100

99

86

81

61

31

27

5

0 20 40 60 80 100 120

Thailand

Kamodia

Indonesia

Filipina

Vietnam

Laos

Malaysia

Brunei

Singapura

Flexibility of wage determination

2017-2018

2016-2017

77

61

56

49

32

30

25

11

3

0 20 40 60 80 100

Filipina

Brunei

Laos

Vietnam

Kamodia

Thailand

Indonesia

Malaysia

Singapura

Hiring and firing practices

2017-2018

2016-2017

113

102

101

95

73

65

45

24

4

0 50 100 150

Indonesia

Filipina

Malaysia

Brunei

Singapura

Thailand

Kamodia

Vietnam

Laos

Women in Labor Force, Ratio to Men

2017-2018

2016-2017

CHALLENGES & GOVERNMENT ACTIONS ON DIGITAL ECONOMY

Formulate

Suitable

Regulation

and

Incentive

Reduce

Digital Gap

• Economic Connectivity, including

Palapa Ring Project, Pipa Bersama

and Wireless Connectivity Pilot

Project for Rural Area

• Government Connectivity in the

form of Integrated Government

Network and Data Center

• Presidential Decree No.

74/2017 on e-Commerce

Road Map 2017-2019

• Tax incentives for start-up

and venture capital (KMK No.

1251/ 1988 and KMK No.

250/1995)

Government Actions

9

Improve

Human

Resources

Capability

• Development of Human Resources

and National ICT Industry e.g. through

establishment of an innovation

development center: Nongsa Digital

Park (NDP) in Batam for creative digital

industry players

• Improving skills of workers

• Creating new jobs by promoting

technology-based entrepreneurship

• Improving employment social

protection

21,30%

14,60%

64,20%

0%

10%

20%

30%

40%

50%

60%

70%

2015 2025 2030 2045

Labor Projection by Sector

Agriculture Manufacturing Industry Services

10 FUTURE OF JOBS

Source: Bappenas Calculation, 2017

• Labor with middle-high

education will reach 90%, based

on Vision 2045 projection.

• The required annual growth of

labor with university education

is 3,7% (McKinsey, 2012) or

around 700,000 p.a.

• Service sector will continue to

grow and reach 64,2% in 2045.

10%

70%

20%

0%

20%

40%

60%

80%

100%

2015 2030 2045

Labor Projection by Education

Low Middle High

Notes:

Low: SMP and below; Middle: SMA/SMK & Diploma; High: University

• Complex problem-

solving

• Critical thinking

• Creativity

• People management

• Coordinating with

others

• Emotional intelligence

• Judgment and

decision-making

• Service orientation

• Negotiation

• Cognitive flexibility

Soft Skills

• Computer and Mathematics

• Architecture

• Engineering

(Science, Technology, Engineering,

Mathematics) STEM

Technical skills

Source: Future of Jobs Report, WEF

11 IMPROVING SKILLED WORKERS: STRATEGIC POLICIES

To enhance the training

curricula for improving

soft skills and hard skills

To promote

competency-based

vocational training

and apprenticeship

program

To improve the

qualification, requirement

and the operation of

professional certification

institutions across the

country

1

2

3

Tech improves

labour

productivity

Tech creates more

productive and larger

amounts of new jobs

with higher income

Tech improves

access of MSMEs

to finance

Tech widens the

inclusivity of decent

jobs opportunities

JOB

CREATION

INFORMATION &

TECHNOLOGY

IMPACT ON SDGS

STRATEGIES: WHAT SHOULD BE DONE? 12

Improving skills of workers:

1. New automation-supporting skills;

2. Human-specific skills (soft skills, logical thinking, coaching, problem

solving, creativity, etc.);

3. Improvement of education, with emphasis on STEM and soft skills;

4. Facilitation of retraining and income benefits.

Creating new jobs by promoting technology-based

entrepreneurship.

Improving social protection scheme,

coverage and deliveries.

Facilitating knowledge transfer from

high-skilled expatriates.

Promoting more flexible labor market by improving labor

regulation, quality of labor market information, and TVET

system.

THANK YOU.