STRATEGY ON REDUCING UNEMPLOYMENT PERSISTENCE: A MICRO ANALYSIS IN INDONESIA

Abstrak

This study has three main objectives namely: (1) examine the existence of the persistence of unemployment in Indonesia; (2) examine the factors that cause the persistence of unemployment in Indonesia and in some sample areas, and (3) formulate strategies and policy measures needed to reduce the level of unemployment.To achieve these objectives the activities we do is an empirical analysis through the modeling of Econometrics, unemployment accounting, and descriptive statistics. Meanwhile, the data used are secondary data and regional macroeconomic and primary data collected through interviews with workers, the unemployed, firms, bureaucrats, and unions.The study concludes that the persistence of unemployment in Indonesia is disequilibrium persistent unemployment without self correcting mechanism, which means that the persistence occurred outside the labor market equilibrium and has no automatic mechanism to get to the point of equilibrium. In addition, persistence is the result of the slow process of capital accumulation, wage rigidity, the length of job search, and the inertia caused by institutional factors of labor market.The main implication of this study are: (1) the need to improve the quality of growth through hands-on strategy; (2) banking policy and capital markets can lead to acceleration of capital accumulation; (3) monetary policy is more focused on inflation targeting, (4) increased total factor productivity; (5) special incentives for labor-intensive sectors; (6) strengthening vocational education, and (7) antiunemployment programs that are regionally specific.Keywords: Persistent unemployment, Disequilibrium, Wage rigidity, Job search, Indonesia.JEL Classification: J23, J31