Education, training, and labor market outcomes for youth in Indonesia

54170 Education, Training and Labor Market Outcomes for Youth in Indonesia Human Development Department East Asia and Pacific Region THE WORLD BANK OFFICE JAKARTA Indonesia Stock Exchange Building, Tower II/12-13th Fl. Jl. Jend. Sudirman Kav. 52-53 Jakarta 12910 Tel: (6221) 5299-3000 Fax: (6221) 5299-3111 Printed in August 2010 Education, Training and Labor Market Outcomes for Youth in Indonesia is a product of staff of the World Bank. The findings, interpretations and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the government they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomination and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement of acceptance of such boundaries. Cover photo credit: University of Indonesia Photo Archive.  Report No. 54170-ID Education, Training and Labor Market Outcomes for Youth in Indonesia Human Development Department East Asia and Pacific Region  Table of Contents Acknowledgments iv List of Abbreviations and Acronyms v 1. Introduction 6 2. Economic Context: Growth, Transformation and the Demand for Skills 8 3. A Difficult Transition to the Labor Market 12 3.1 Unemployment 13 3.2 Job Quality 14 4. Senior Secondary Education, Skills and Labor Market Entrance 19 4.1 Vocational versus General Secondary Education 23 5. Meeting the Demand for Skills 28 5.1 Cognitive Skills 29 5.2 Generic (Noncognitive Skills) 29 5.3 Vocational Skills 31 5.4 Implications for the Education Sector 31 6. Conclusions and Recommendations 40 References 43 ii Education, Training and Labor Market Outcomes for Youth in Indonesia  Table of Contents List of Boxes Box 5-1: Curriculum Trends and Skills Demand in the US 33 Box 5-2: The Role of Entrepreneurship Programs: The International Evidence 39 List of Figures Figure 2-1: GDP per Capita and Share of Agriculture in GDP (1990-2006) 8 Figure 2-2: Agriculture as a Share of Employment and GDP (1990-2006) 9 Figure 2-3: Share of Salaried Employees with Senior Secondary Education or Higher Qualification by Sector (1994-2007) 10 Figure 2-4: Returns to Levels of Education (Relative to Primary Education)(1994-2007) 10 Figure 2-5: Transition Rates Between Levels of Education by Generation (2008) 11 Figure 3-1: Share of Skilled, Unskilled and Skilled Production Jobs (1994-2007) 12 Figure 3-2: Unemployment Rate by Age Groups 15-29 (2007) 13 Figure 3-3: Unemployment Rate by Age Group and Urban/Rural Divide (2007) 14 Figure 3-4: Unemployment Rate by Age Group and Education Level (2007) 14 Figure 3-5: Salary Profile of Youth by Type of Employment and Education (in Rupiah) 15 Figure 3-6: Number of New Employees by Age Group, Salaried Jobs and Total Employment (2007) 15 Figure 3-7: Probability of Transitioning Between Salaried Jobs for Those Who Changed Jobs (By Age Group), 2007 16 Figure 3-8: Share of Labor Force in Salaried Jobs by Age Group and Urban/Rural 16 Figure 3-9: Share of Labor Force in Salaried Jobs by Age Group and Education Level 17 Figure 3-10: Salary Profiles by Education Achievement (2007) 17 Figure 4-1: Skill Premiums and Skilled Workforce in Indonesia 20 Figure 4-2: Average Hourly Salary by Worker and Parental Education (2007) 20 Figure 4-3: Average PISA Score by Socio-economic Decile (2000-2006) 21 Figure 4-4: Employers Opinion of Quality of Employees with Senior Secondary Education (%) 22 Figure 4-5: Entry Scores and Ratio of Applicants to Entrants (By Type of Senior Secondary School) 23 Figure 4-6: Share of SMA and SMK Students by Consumption Quintiles 23 Figure 4-7: Unemployment Rate for SMA and SMK Graduates, Age 20-24 (1991-2007) 24 Figure 4-8: Unemployment Rate for SMA and SMK Graduates, Total Labor Force (1991-2007) 24 Figure 4-9: Relative Wage SMK to SMA Graduates, Age 20-24 (2002-2007) 25 Figure 4-10: Out-of-Pocket Costs of Attending Senior Secondary Education (By Stream (SMA/SMK) and Public/Private Facility (2006)) 26 Figure 5-1: Adjusted Salaries According to Public SMA/SMK Enrollment 29 Figure 5-2: Skill Importance and Skill Gaps Identified by Employers 30 Figure 5-3: Share of Firms Rating Different Types of Skills as "Very Important (By Type of Position and by Sector) (2008)" 30 Figure 5-4: Share of Workers Who Have Completed Training by Education Level (2003) 35 Figure 5-5: Respondents Who Report Attending a Training Course (By Consumption Quintile and Labor Force Status (2006) 36 iii  Acknowledgments This report is part of the Analytical and Advisory Activities (AAA) program focusing on the engagement area of "Skills development, competitiveness, and knowledge economy" and is based on several background papers and technical notes written on the characteristics of youth employment and the role of education and skills in the school-to-work transition in Indonesia. The team of authors who produced this report is grateful to the officials and staff of the Ministry of National Education (MoNE) for their overall support. Special thanks are in order to Dr. Hamid Muhammad, the Director General for Non Formal and Informal Education, Ministry of National Education, who provided overall guidance to this report. The report also benefited greatly from the inputs of Dr. Nina Sardjunani (Deputy Minister for Human Resources and Cultural Affairs, BAPPENAS), Dr. Taufik Hanafi (Director for Religion and Education, BAPPENAS) and Rahma Iryanti (Director of Employment, BAPPENAS). The production of this report was generously supported by the Basic Education Capacity Trust Fund (BEC-TF) which is jointly funded by the Government of the Netherlands and the European Union. The report also benefited greatly from the inputs which were received during the Education Sector Assessment consultation meetings and discussions. It should be noted that while inputs of various officials have been incorporated into the report, the policy recommendations in this document do not necessarily reflect the policies of the Government of Indonesia, the Government of the Netherlands or the European Union. The final report was prepared by Pedro Cerdan-Infantes (Task Team Leader, Human Development Sector, East Asia and Pacific Region, World Bank), based on key inputs from Javier Luque (Senior Education Economist, Education Department, Latin America and the Caribbean Region, World Bank and previous co-TTL), Pawan Patil (Senior Economist, Indonesia Sustainable Development Department, World Bank and previous co-TTL), Dandan Chen (Senior Economist, Education Department, East Asia and Pacific Region, World Bank), Emmanuella Di Gropello (Senior Human Development Economist, Education Department, East Asia and Pacific Region, World Bank) and the Poverty Reduction and Economic Management (PREM) team at the World Bank Office, Jakarta. The report was prepared under the supervision of Mae Chu Chang (Lead Educator and Indonesia Human Development Sector Coordinator, World Bank) and with the overall guidance and support of Eduardo Velez Bustillo (Education Sector Manager, East Asia Human Development, World Bank). The peer reviewers were Wendy Cunningham (Lead Specialist, Human Development Network Children and Youth Department, World Bank), Arvil Van Adams (Consultant, Africa Social Protection Unit, World Bank ), and Vivi Alatas (Senior Economist, PREM Sector Department, World Bank). Indonesia Country Director: Stefan G. Koeberle East Asia Human Development Sector Director: Emmanuel Jimenez East Asia Education Sector Manager: Eduardo Velez Bustillo Indonesia Human Development Sector Coordinator: Mae Chu Chang Task Team Leader: Pedro Cerd