Labour Productivity in Mining and Agriculture Using Indonesia - Essay Example

? Labour productivity in mining and agriculture using Indonesia, The Philippines, and The US as case studies Introduction The performance of a country in regard to its labour productivity reveals the potentials of its economy to face the market turbulences related not just at local but also at international level. The changes in the labour productivity of three countries: Indonesia, Philippines and USA are presented in this paper aiming to show the differentiations in economic performance of countries with different geographical and socio-cultural characteristics. An important finding of the current study is the following one: labour productivity in all industrial sectors cannot be standardized in the long term; fluctuations are inevitable even if the indications for future growth are clear. Another critical finding of this study is that the power of western economies to resist to global economic pressures cannot be guaranteed. For example, the findings in regard to labour productivity in USA are encouraging but no estimates have been made for the country’s labour productivity trends in the long term. On the other hand, the level of labour productivity of a country can be high even if the status of the national economy is not as high as could be expected; the case of Philippines is an indicative example. For this reason, when trying to compare the labour productivity indicators of countries worldwide it would be necessary to refer not only to their current performance in the sectors involved but also to their socio-cultural characteristics, as influencing all types of industrial activities developed locally. 2. Comparative analysis of labour productivity and the associated changes in sectors of production, in agriculture and mining sectors According to a quite descriptive definition, labour productivity is ‘a measurement of efficiency of production derived from the ratio of the real output to input over a period of time’ (National Statistics Office – Republic of the Philippines, 2012) 2.1 Indonesia The performance of Indonesia in regard to the growth of its economy is impressive. In fact, currently the country’s economy as ranking at the 16th position in the context of the global market (McKinsey and Company, 2012, p.1); by 2030 the economy of Indonesia is expected to be at the 7th position of the relevant index (McKinsey and Company, 2012, p.1). The significant increase of labour productivity, at a level of 60%, is considered as the key reason for the rapid growth of the country’s economy (McKinsey and Company, 2012, p.1). For reaching the targeted level of economic growth, i.e. for becoming the 7th most powerful economy in the world, Indonesia needs to increase the level of its labour productivity by ‘an additional 60%, compared to the rate achieved between 2000 and 2010’ (McKinsey and Company, 2012, p.1). In order to understand the rate of labour productivity in Indonesia it would be necessary to refer to the country’s trends in regard to labour force and employment growth. These trends are presented in Figure 1 below. An increase in the labour force in general seems to exist from 2004 up to 2010; however, this increase does not reflect the employment of young people, age between 15 and 24 (Figure 1); for the specific category of the labour force, a trend for continuous decrease is revealed for the years 2004 to 2010 (Figure 1). Figure 1 – Labour force and employment growth trends in Indonesia for the years 2004 to 2010 (source: ILO 2011, p.9) It should be noted that the level of limitation of youth participation in the workforce has been especially high from 2007 up to 2010, while from 2005 to 2007 signs of standardization of the percentage of young people entering the workplace seemed to exist (Figure 1). In regard to the distribution of labour force across the country’s industries, the following facts should be highlighted: most of workers in Indonesia are employed in the agricultural sector, with a percentage of 38.1 (Figure 2 below), even if the sector’s workforce has been reduced about by 7% between 2000 and 2010 (Figure 2). The workforce of the country’s mining sector, which is also discussed in this paper, seems to be quite low, reaching a percentage of just 1.2% in 2010, being increased by only 0.7% between 2000 and 2010 (Figure 2). This fact leads to the assumption that the chances for the growth of labour productivity in the country’s mining sector in the future are quite limited; indeed, no interest seems to exist by locals to enter the particular sector, preferring other sectors, such as the public administration sector where an increase of about 4% has been achieved between 2000 and 2010 (Figure 2). Figure 2 – Employment in Indonesia, by sector (source: ILO 2011, p.20) As to the decrease of the country’s workforce in the agricultural sector, this can be explained referring to the following fact: the last years the agricultural land suitable for supporting agricultural production has been decreased (Jeon 2011, p.22). As a result, the level of ‘average landholding has been reduced’ (Jeon 2011, p.22) while ‘small-scale farming’ (Jeon 2011, p.22) has been promoted. Under these terms it would be quite difficult for labour productivity in the country’s agricultural sector to be increased, as also verified through the figures included in Figure 2, where the pressures on agriculture in regard to its workforce are made clear. At this point, particular reference should be made to the following fact: the average wage in Indonesia is kept at low levels, despite the efforts of local unions (Wibowo 2012). This phenomenon could threaten the prospects of the country in regard to its labour productivity in the near future. In any case, the performance of Indonesia in terms of economic growth is high. Reference should be made to Figure 3 below, where the average annual growth of the country in two different periods of time is presented; it is clear that from 2006 to 2011 the country’s economy shows signs of growth, despite the pressures in the international market, which has been severely affected by the recession of 2007-2009. Figure 3 – Average economic growth in Indonesia from 2001 to 2011 (source: OECD 2013, p.1) In addition, the performance of the economy of Indonesia can be characterized as quite satisfactory compared to the other country discussed in this paper, Philippines (Figure 4 below). This fact indicates the potentials of Indonesia to reach, in the future, higher levels of labour productivity growth, compared to Philippines, the performance of which in regard to labour productivity is analyzed in next section. Figure 4 - Economic growth of certain Asian countries from 2000 to 2010 (source: ILO 2011, p.5). 2.2 Philippines Labour productivity in Philippines has been highly affected by two facts: a) the tsunami of 2011 in Japan and b) the expansion of crisis in Middle-East, as led to the increase of the price of petroleum globally (National Wages and Productivity Commission 2011). In order to protect the average income of workers across the country the government of Philippines decided to increase the average income of workers in all industrial sectors, so that a balance is kept between income and cost of living (National Wages and Productivity Commission 2011). Despite the global pressures, the potentials of the country’s economy to support an increase in labour productivity, in all industrial sectors, seem to be high. Reference should be made to the data presented in Figure 5 below. In this Figure the key indicators of the economy of Philippines for the years 2005 to 2010 are presented. Emphasis should be given to the increase of GDP growth rate, the decrease of inflation but also the significant increase of income from exports (Figure 5). Figure 5 – Key indicators of Philippines’ economy, for the period 2005 to 2010 (source: Llanto 2012, p.4) Indeed, through the data released through Figure 6, the increase of labour productivity in Philippines between 1971 and 2008 is verified. Figure 6 – Labour productivity in Philippines between 1971 and 2008 (source: Llanto 2012, p.24) The continuous increase in labour productivity in Philippines, at least for the last decade, can be also verified through the figures published in the study of Canlas (2008), which has been published by ILO. According to the above study, an important increase in both the GDP and labour productivity has been achieved in Philippines between the years 2000 and 2006 (Figure 7). Figure 7 – Economic indicators of Philippines’ economy, especially in regard to GDP and Labour Productivity (source: Canlas 2008, p.3). In fact, the important increase of Labour Productivity and of the rate of employment has led to the increase of GDP in Philippines between the years 2000 and 2006, as revealed through the data included in Figure 8 below. Figure 8 – GDP as related to employment and Labour Productivity in Philippines (source: Canlas 2008, p.4) After reviewing the figures related to the performance of Philippines’ economy, Canlas has come to the conclusion that the increase in GDP and Labour Productivity in Philippines will be continued at least up to 2015. The estimations of the above researcher in regard to the development of GDP and Labour Productivity in Philippines for the years up to 2015 are presented in Figure 9 below. Figure 9 – Estimated level of GDP and Labour Productivity in Philippines by 2015 (source: Canlas 2008, p.6) On the other hand, the level of employment in Philippines between the years 2001 and 2010 seems to be standardized, as indicated in Figure 10. The country’s government should take measures for supporting the enhancement of the rate of employment, a fact that would also benefit the country’s Labour Productivity. Figure 10 – GDP as compared to employment in Philippines for the years 2001 to 2010 (source: Department of Labour and Employment, Philippines, 2011, p.5). The level of GDP and employment in Philippines are analyzed for showing the country’s potentials to support labour productivity in general, including the agricultural and the mining sectors. The Graph in Figure 11 below shows the level at which the income from agriculture has affected the level of GDP in Philippines. According to the relevant Graph the level of labour productivity from agriculture in Philippines is rather low, as compared to the country’s other industries. Figure 11 – GDP by industrial sector in Philippines, from 1981 to 2001 (source: Habito and Briones 2005, p.25) The status of labour productivity in the agricultural sector of Philippines can be also made clear through the Graph in Figure 12, where the performance of Labour productivity, as compared to employment in general and agricultural employment is presented. Figure 12 – Labour productivity v employment/ agricultural employment in Philippines (source: Habito and Briones 2005, p.31) As of the country’s labour productivity in regard to the mining sector, similar findings have been identified. More specifically, according to a report published by the National Statistics Office – Republic of the Philippines, in 2012, in the specific country the mining sector is considered as a sub-sector of the Agro-industry (National Statistics Office – Republic of the Philippines 2012). Figure 13 – Labour productivity in micro, small, medium and large establishments (MSMLE) in Philippines (source: National Statistics Office – Republic of the Philippines 2012) In the same report, information is provided in regard to the performance of Agro-industry in terms of labour productivity. It is explained that labour productivity in this industry is higher in large establishments, as compared to establishments of other sizes (Figure 13). 2.3 USA In general, the level of labour productivity in USA can be characterized as impressive. In Figure 14 below the GDP of each worker in G7 countries is presented. The advantage of workers based in USA compared to those working in other G7 countries is clear. Figure 14 – GDB by worker in G7 countries (source: Office for National Statistics 2010) It should be noted that the position of USA compared to its workers’ GDP is not related to the increased hours of working, as it could be possibly believed. In fact, the Figure 15 below shows the small differences between US, Germany and France in terms GDP per hour worked (Figure 15). This means that the high difference between USA and the other G7 countries in terms of GDP per worker is related to the high overall benefits provided to workers in USA, as compared to other G7 countries Figure 15 – GDP per hour worked across G7 countries (source: Office for National Statistics 2010, p.3) In regard specifically to the agricultural industry of USA the following issue should be highlighted: labour productivity in the particular industry has been increased, as this increase has been enhanced by a series of factors, such as those presented in Figure 16. Figure 16 – Factors influencing labour productivity in agriculture, in USA (source: Fuglie et al. 2007, p.5) It should be noted that the performance of US economy is not standardized. There are certain industries that tend to perform high, while others have been declined, probably under the influence of global market turbulences. The coal and mining industry of USA is one of these sectors. The performance of USA in regard to labour productivity in various industries is presented in Figure 17 below. Particular emphasis should be given to the significant decrease of the labour productivity in the coal and mining industry, a fact that diminishes the chances for the sector’s workers to reach high GDP levels, at least as compared to the workers of other industries. Figure 17 – Labour productivity in USA by sector (source: Holman, Joyeux and Kask 2008, p.75) Moreover, it seems that low labour productivity in the country’s mining industry has led to this sector’s low output, compared to other industrial sectors. The particular fact is made clear through Figure 18 below. Of course, it could be possibly supported that the low output in the coal and mining industry of USA is a result of the lack of appropriately skilled workers. Thus, low labour productivity and low output in the particular sector are mutually depended. Figure 18 – Output per industrial sector in USA (source: Holman, Joyeux and Kask 2008, p.66) At the same time, the risks related to the particular sector have remained high, despite the significant development of technology. In Figure 19 the fatality and injury rates, as related to the specific sector for the years 1931 to 1994 are presented. Even if fatality rates have been decreased in the above period, the injury rates seem to remain at standard levels. This fact denotes the inability of the authorities to control the operations of the industry’s firms, especially in regard to the application of the laws related to health and safety in the workplace. If this phenomenon is combined with the sector’s low remuneration levels the low output of the sector can be explained. Figure 19 – Fatal and incident rate in the US coal and mining industry (source: Darmstadter 1997, p.23) According to a recent report of the Bureau of Labor Statistics (2012) in the fourth quarter of 2012 a small decline in non farm productivity, at the level of 1.9 percent appeared. The specific phenomenon is related to the increase of labor costs for the same period. The problem could be resolved by taking measures for controlling inflation. In regard to the Agricultural industry no signs of labour productivity decline have appeared, probably because of the industry’s important performance in terms of average level of production (Bureau of Labor Statistics 2012). 3. Conclusion According to the issues discussed above, the power of Indonesia and Philippines to achieve a high economic growth in the near future cannot be ignored. Still, the superiority of USA in terms of labour productivity cannot be doubted. For example, reference should be made to the figures presented in Figure 20 below. In the particular figure the labour productivity in regard to the agricultural sector of various countries, including USA, Indonesia and Philippines, is presented. In fact, it seems that in USA agriculture does not ‘represent only the labour with very low productivity’ (Bottema 2008), as in the case of most countries, including Indonesia and Philippines. Figure 20 below shows the annual GDP per worker in the agricultural sector. The difference between USA and the rest countries, as also Indonesia and Philippines, is clear. The potentials of USA to achieve a further growth of its labour productivity in regard to the agricultural sector are many. Figure 20 – Labour productivity in agriculture, as compared between a number of countries (source: Bottema 2008). In other words, when referring to labour productivity a series of factors need to be reviewed. The potentials of a country to reach a high level of economic growth do not necessarily indicate the ability of that country to secure a high level of labour productivity. This fact is made clear to the case of Indonesia and Philippines. The economies of these two countries seem to have many prospects for future growth; still, the potentials of these countries to reach high levels of labour productivity seem to be limited, at least as proved through the level of these countries’ labour productivity in agricultural and mining sectors. In USA, despite the pressures against the national economy, the chances for high labour productivity are quite high, as also verified through Figure 1 above and as revealed through the material presented in this study. References Bottema, T., 2008. Agriculture's Long March in Asia. UNESCAP-CAPSA, Bogor, Indonesia. 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