Trade employment linkages in indonesian agriculture
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David Vanzetti Australian National University. Trade-employment linkages in Indonesian agriculture. Jakarta, Indonesia, July 13th, 2010. Recent interest in trade and employment. With increased trade, countries exposed to external shocks Positive and negative GFC Food self-sufficiency

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Trade-employment linkages in Indonesian agriculture

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David Vanzetti

Australian National University

Trade-employment linkages in Indonesian agriculture

Jakarta, Indonesia, July 13th, 2010


Recent interest in trade and employment

  • With increased trade, countries exposed to external shocks

  • Positive and negative

  • GFC

  • Food self-sufficiency

  • Does trade liberalisation costs jobs?


Illustrative scenario

  • ASEAN – China FTA

  • Impacts on labour market in agriculture

  • Use global general equilibrium model, GTAP


Trade and employment linkages

  • Trade and growth

    • +ve, causaulity?

  • Demand for labour intensive goods?

  • Capital-labour substitution

  • Econometric studies may be useful


Structural adjustment

  • Unemployment in specific sectors

  • Durations of unemployment

  • Trade policy vs labour policies?

    • Low labour productivity in agriculture. Better use?

  • Case studies may be useful


GTAP

  • For policy scenarios

  • General equilibrium trade model

  • Multi-region, multi-sector

  • Capital, labour, land, intermediate inputs

  • Two labour factors

    • Skilled

    • Unskilled


Assumptions

  • Perfect competition (e.g. agriculture)

  • No excess profits

  • Constant returns to scale

  • Foreign products imperfect substitutes


Demand for labour in GTAP

Dlabour = f(wages, price of output, technology)

Dlabour = σ (w-p)

σ = elasticity of substitution

Labour use decreases with wages and increases with output price.

Labour use also increases with price of capital, land and other inputs


Demand for labour

  • Closely related to output

  • K/L substitution


Agricultural sectors in GTAP


Data for Indonesia

  • K/L ratios

  • Labour/output ratios


Capital labour ratios

Low in agriculture, but dubious data


Labour output ratios

xx


Illustrative scenario

  • ASEAN China FTA

  • Assume no exemptions

  • Long run closure


Labour market closures

  • Fixed employment

  • Fixed real wages

  • Some combination


Results

  • Labour use

  • Real wages

  • Real incomes


Employment and wages

Change in unskilled employment and real wages under alternative labour market assumption


EmploymentPrimary agriculture

Change in unskilled labour use by sector

Small changes


EmploymentPrimary agriculture

Absolute change in unskilled labour use by sector, Flex scenario

Rice, palm oil


EmploymentProcessed agriculture

Change in unskilled labour use by sector

Mostly +ve with Flex


EmploymentProcessed agriculture

Absolute change in unskilled labour use by sector, Flex scenario

Fish, ‘other food’


Change in welfare with alternative labour market closures

Greater welfare gains withflexible labour force


Implications

  • AFTA-CHN FTA will generate demand for labour intensive agricultural goods in IDN

  • Results in increased wages and/or increased employment

  • Fixed wages closure allows increase in labour use with large welfare implications

  • Some combination more realistic

  • Negative impact in some sectors


Limitations

  • Data on labour use

  • K/L ratios split from primary agriculture

  • Only two labour sectors

  • Not linked to household data (poverty)

  • Labour response data (supply elasticity)


ExtensionWith RinaOktaviani (IPB)

  • Combine trade impacts with single country CGE

  • 74 sectors (inc 30 ag)

  • Ten household types

  • Two regions (Java, non-Java)

  • 2005 Social Accounting Matrix


Ten households

  • landless rural,

  • rural with less 0.5 ha

  • with 0.5 – 1 ha,

  • with more than 1 ha

  • low income rural non-agricultural,

  • medium income rural non-agricultural

  • high income rural non-agricultural

  • low income urban

  • medium income urban

  • high income urban


The End


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