Young Balinese workers trapped by ‘reservation wage’

Young Balinese workers trapped by ‘reservation wage’

By:  Dr. Komang Agus Rudi Indra Laksmana, S.E., M.M

The Central Bureau of Statistics (Badan Pusat Statistik or BPS) of Bali Province has recently released its report for February 2021. The report contains several noteworthy data points, including a decrease in the number of employed and unemployed individuals in Bali.  The labor force comprises 2.57 million people, of which 2.43 million have jobs and 0.14 million are unemployed. Despite a decrease of 1.49 thousand people in the labor force in February 2021, the number of people employed increased by 3.9 thousand people and the unemployment rate decreased by 5.4 thousand people compared to August 2020.

The decline in the unemployment rate was the highest contribution from absorption in the agriculture and retail trade sectors by almost 45 percent from August 2020, the structure of informal workers changed in August 2020 by 49.02% to 56.07% in February 2021, and on the other hand formal workers changed from 50.98% to 43.93% in the same period, this is very natural during the Covid-19 pandemic there was a wave of layoffs which caused a shift in the main job to the two informal sectors, so that the two sectors received a high spillover of labor.

However, it is important to carefully examine the composition of unemployment in Bali, which primarily affects young people with high school education or higher, specifically those with a general high school, vocational high school, diploma, or bachelor’s degree. According to BPS data from February 2021, the majority of workers in Bali had a junior high school education or lower, accounting for 44.58% of the workforce. This percentage is significantly higher than that of Diploma/University graduates, who only make up 19.13% of the workforce, and SMA/SMK graduates, who make up 36.29%. These figures are similar to those from August 2020, where junior high school workers and below accounted for 47.28%, SMA/SMK accounted for 35.74%, and Diploma/University accounted for only 16.98%. In February 2021, the percentage of young unemployed people decreased. However, this decrease was observed only among those with a junior high school education or below. This suggests that young unemployed people with a lower education level find it comparatively easier to secure employment.

In the language of Economics, reservation wage is the minimum salary level that workers are willing to accept, there is a tendency for highly educated young people to have high expectations of “better jobs” due to their higher education level. In contrast to the group of young people with junior high school education and below, this group’s expectations are not as high. They are more willing to accept ‘any job’ or lower wages as long as they can make ends meet.

Economic observer, Chatib Basri, once wrote his opinion that usually the group of young people who are trapped in the reservation wage comes from the middle class, which is a group of people who are difficult to summarize and diverse, but there is something in common: they are professional complainers. This group expects to work in the formal sector and earn a good income. They can use social media to express their dissatisfaction.

This issue should be a significant concern, given that the open unemployment rate in Bali is much higher for those with a Diploma/University education at 20.61% compared to those with a junior high school education or below at only 2.08%. This highlights the need to strengthen higher education and immediately adopt vocational education. This can be achieved through enhancing cooperation between educational institutions and the manufacturing industry, providing tax incentives for companies willing to improve the quality of human resources through vocational education, and encouraging research and development activities to produce innovative products.

Unemployment is caused by a variety of factors, including structural changes, demographics, and rapid technological advancements that have led many companies to replace human labor with machines for greater efficiency. Additionally, there is a societal issue of job prestige, where some individuals are hesitant to take on jobs that are perceived as less desirable. This mindset is particularly prevalent among the younger generation.

The author is an academic and management practitioner.