Employment is a hot button issue in Indonesia. The issue of unemployment has been a key platform for president Jokowi. His US$300 million effort in upgrading the nation’s infrastructure has seen some success in reducing unemployment figures. In the first quarter of this year, Indonesia reported unemployment rate stood at 5.13%. The lowest recorded figure in two decades.
Despite a challenging global economy, the country has done well to keep the inflation low and maintain a growth rate over 5%. However, for the country to avoid the middle income trap it is crucial for Indonesia to increase its economic competitiveness. A fact that does not escape the attention of President Jokowi.
For Indonesia to escape the middle income trap, it needs to address its weakness in human capital development and improve labor conditions.
In the subsequent years, there have been some success in the government’s effort to address the issues relating to employment. The efforts to bolster tertiary education and vocational training has paid off.
As a recruitment agency, the changes in recruitment trend indicates Indonesia’s success in human capital development. Five years ago, the ratio of local to foreign talent in mid to senior position stood at 1:4. At the time employers expressed their reservation towards the abilities of Indonesian graduates.
This year, the ratio has reversed with 80% of mid to senior position being filled by Indonesian. The change is driven by cost concerns and visa restriction of foreign workers. Over the years, employers are gaining confidence with the quality of work provided by the local workforce.
The remaining 20% of expatriate workers in Indonesia is confined to the senior positions, which there are no local equivalent in their quality of work. For such position, the usual arrangement that the foreign hire would be employed for a number of years and train a local hire to perform their duties. This arrangement is beneficial for both employers and the government as there is a development of local talent.
As an agency there are certain expertise that is more difficult to source locally than others. For instance, Indonesia’s tech start up, Go-Jek was looking for a local talent to fill a specialized IT position. In such cases, the usual route was to source a foreign talent from India. However, our agency managed to overcome the challenge and source a local talent that match their criteria.
From a recruitment standpoint, the recent developments in regulations of foreign worker would be beneficial to the economy, as there is a shortage of highly skilled manpower in certain fields such as IT and engineering. The admittance of foreign workers would enhance the local talent as skills and knowledge would be transferred through informal channels.
With foreign worker reforms, the public have expressed their concerns over the increased competition over jobs. In this regard, many employers have expressed their preference for local employees. While, Indonesia does not have a minimum salary levels in place for skilled and professional foreign workers similar to the existing regulation in Singapore. The increased cost associated with hiring a foreigner is an incentive for companies to prioritize local talent. However, it should be noted that reforms in foreign hiring could boost Indonesia’s economic competitiveness and attract foreign investment as well as transfer of knowledge.
Nitesh Chellaram is a business owner and technology entrepreneur in Jakarta, Indonesia. He co-founded Talent Search Recruitment, a Jakarta-based executive search company specializing in human resources (HR) and recruitment services for traditional businesses as well as startups. He is passionate about tech and non-tech startups and has developed a certain level of expertise after dealing with names such as Go-Jek, OYO Rooms, IndoCRP group, etc.