Reducing Unemployment in Indonesia: Results from a Growth-Employment Elasticity Model

Most of the unemployed in Indonesia are young and inexperienced, still live with their parents, and have at least 12 years of education. Starting with the premise that efforts to reduce unemployment should take into account the characteristics of the unemployed, we develop a model to look at the impact of different sectors and locations of economic growth on urban, rural, and national employment using a provincial level panel dataset. We find that increasing employment in rural and urban areas indeed requires different strategies. Services growth has the highest elasticity of employment in urban areas, while agriculture growth is still the best avenue to increase rural employment.