Openness, Technological Change and Labour Demand in Pre-Crisis Indonesia

Abstract

This paper examines the impact of export orientation, import competition, foreign ownership, and the rate of capital accumulation on the relative demand for skilled and unskilled labor in pre-crisis Indonesia. Estimates from an interrelated factor demand analysis indicate that openness and foreign ownership, by themselves, acted to raise the relative demand for unskilled workers in the pre-crisis period, while the newness of capital was associated with increased relative demand for skilled workers. Overall, the relative demand for unskilled workers increased yet their relative wage position weakened. These contrasting relative employment and wage changes are consistent with the examined demand shocks and the greater elasticity of supply of Indonesian unskilled relative to skilled labor.