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The Labour Markets and Gender Impactof the Global Economic Slowdown onValue Chains
Mon, 04/01/2013 12:48:01

Executive Summary


Te present study analyses the impact of the current global fnancial and economic crisis on the Indone-sian furniture industry. Specifcally, it reviews how labour markets in the industry and in key geographi-cal areas have been afected. Based on secondary data analysis, focus group discussions and empiricalfeld surveys, the impacts on enterprises, workers and households are examined in detail. Furthermore,the study discusses how enterprises, individuals and households respond to and cope with the crisis..

Indonesia has a rich tradition in woodcarving. Wood furniture and handicrafts are part of the Indone-sian culture. Many people, especially in Java and Bali, are known for their woodcarving skills. Furniture,together with industries such as textiles and garments, leather and food and beverages, are labour-in-tensive manufacturing industries. Tey have been a key source of wage employment, also for women inrural areas. Te majority of enterprises in these industries are SMEs. Based on recent data, the Indone-sian furniture sector comprises more than 3,500 companies but the total number of SMEs in this sectoris much higher. Te production of wood furniture is concentrated in Java. Within Java, the industry
is concentrated in Central Java, notably Jepara, Klaten, Sukoharjo, Semarang City, Solo and Cirebon.Based on BPS data 2004, Central Java accounted for approximately 26.5 % of national production
and about 27.8 % of employment in the wood furniture industry. Based on data from the Central JavaIndustrial and Trade Ofce for the period 1999-2006, the percentage of wood exports among CentralJava’s total non-oil exports is fairly constant and quite considerable, i.e. 25-30 %.

Te world furniture trade has become a signifcant component in global trade of manufactured prod-ucts, and the export volume of furniture per year has increased rapidly. Furniture producers in Jepara(and other places in Central Java), which is particularly known for its crafted wooden furniture bothlocally and worldwide, are also actively involved in export. However, these furniture clusters have expe-rienced a decline in the last few years. Tis is even more true for Jepara. Not only have exports dropped,but the number of enterprises and employees has also declined; although this decline is not as drastic asthe decline in export value.

In general, Indonesian export of furniture is faced with three key challenges. First, despite its vast forestresources, illegal timber logging and trade have afected the supply of timber to the furniture sector. Sec-ond, China, the world’s largest producer and exporter of furniture, is gaining market share in key exportmarkets. Tird, increasing power and fuel costs have also raised operating costs, eroding Indonesia’scompetitiveness.

Until September 2008, Indonesia’s economy was still showing some resilience towards the crisis. How-ever, during the October-December 2008 period, the country’s economy experienced deterioratingeconomic performance at an unprecedented speed. With regard to the furniture industry in Indonesia,it seems that the current crisis has afected the sector mainly through the demand-side, and particularly
through the export market. For instance, according to the Indonesian Rattan Furniture and Craft Pro-ducers Association (AMKRI), the industry may have to lay of nearly 35,000 workers in the early partof this year. Te Indonesian Central Statistics Agency (BPS) also reported a decline of 28 % in timberexports for the frst quarter of 2009 compared to the same quarter of 2008. Also the Secretariat of theIndonesian Furniture Association (ASMINDO) found that the export volume of rattan furniture de-clined signifcantly at the national level starting in June 2008.

With respect to the category of the enterprises surveyed in the furniture industry, they are mainly inthe informal sector in the sense that they are not registered and thus their labour recruitment or wage
payment systems does not follow the formal existing rules (e.g. labour law, regulations on working con-ditions, etc.). Based on the number of workers, they are mainly MIEs or SEs with the total number ofemployees ranging from 5 to 20 workers.

Te key fndings of the enterprise survey are as follows:

– the majority of the enterprises surveyed have experienced a decline in revenue due to a decline in both domestic and export orders caused by the current crisis; Nevertheless, the majority is optimistic that the crisis will be over soon and thus demand for their products will soon increase;

– seeking out new customers or markets proved to be the most important strategy pursued by the enterprises surveyed for coping with the crisis;

– the most important forms of labour adjustment are reduced working hours, followed by alternative work arrangements and worker lay-ofs;

– in the majority of enterprises surveyed, the average working time of permanent employees did not change;

– unskilled production workers are the most afected type of employees; and

– many of the enterprises surveyed do not provide any support and, of those who do, the largest percentage is the form of counselling/assistance fnding new jobs.

Te workers surveyed are mainly male workers and 60% are temporary employees. Among workers sur-veyed, 80% have no written contract. Te key fndings of the worker survey are as follows:

– the majority of the workers surveyed said that the labour adjustment strategy adopted in their enterprises consisted of fewer average weekly working hours, fewer benefts, reduced bonuses and a reduction in average monthly earnings. However, the extent of the reduction varies not only by enterprise but also by region;

– in the case of layofs, severance pay is the most important type of support from their enterprises in the case of those who have been laid of followed by loans. Te amount varies, however, by enterprise and region;

– the majority of the respondents said that the labour adjustment in their enterprises has reduced their incomes by an average of 50,8 % However, the rate varies by enterprise and region with the greatest decline in Solo; and

– not all of the workers surveyed have adjusted their expenditures in response to a fall in incomes. Among those who have adjusted their expenditures, the rate varies by type of expenditure and region. Overall, the fndings of this particular survey suggest that female, temporary workers and unskilled production employees are the most vulnerable to be afected by the crises.

Te key fndings of the household survey are as follows:

– income of the majority of the households surveyed has dropped in the last one year; many of them experienced a drop of up to 50 %. On average, income has declined by 52 %, and by region, Jepara has experienced the greatest drop.

– Regarding the coping strategies of the households, the ratio of complete to partial reduction as
well as the ratio of those who have reduced their expenditures to those who have not varies by type of expenditure and region. From the category of those who did not reduce their expenditure, the largest percentage goes to education, whereas the largest complete expenditure reduction is for entertainment and the largest partial expenditure reduction is for utilities/transport/communication.

– More than half of the households seek support from friends, family members or neighbours in order to cope with their reduced income.

Te study concludes that, in order to cope with the crisis, the enterprises or furniture producerssurveyed generally only have three options:

1) improving quality and reducing their prices (increase their price competitiveness) as long as it is feasible (depending on their production costs) to prevent demand from further declining;

2) reducing their traditional dependency on narrow markets such as the USA and Western European countries by exploring other export markets (for instance, in Africa or Latin America); and

3) exploring and expanding their domestic market, meaning that they have to compete with imported furniture. Tis strategy is also important to prevent future crises from having a similar impact.




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