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Measuring the Informal Sector: Indonesian Experience

by BPS-Statistics Indonesia

Presented in Workshop on Measuring the Informal Sector 20-23 May 2008 ADB Headquarters, Manila, Philippines

INTRODUCTION (1)
Indonesia is the fourth most populous country in the world, after China, India, and the USA. The estimation Indonesian Population in 2008 was 228.4 million with population growth 1.34 % per year The number of labor force in 2007 (Feb) were 108.1 million, with increase of labor force 2 million people per year The number of open unemployment was still high, 10.5 million (9.8%) in 2007 (Feb). On the other hand, the per capita GDP of Indonesia2 was still quite low, only US$ 1,666.7 in 2006

INTRODUCTION (2)
Excessive labor supply and low productivity of labor have long time been the major problem in Indonesia. In 2007, 16.6 % (37.2 million) of people were still live below poverty line. This percentage did not change much from the condition before 1997 economic crisis, 17,5 % (34 million people) in 1996 The existence of large employment in informal sector is another problem of Indonesias economy . In 2007, 63.1 % of employment were in informal sector Informal sector were basically small enterprises, accounted for 98,77 % of enterprises in Indonesia; however, their contribution to total GDP in 2006 was only 37,67 % With the potential role of informal sector in absorbing the increase in labor force, it is necessary to better measuring the informal sector for policies in improving the productivity of 3 informal sector.

Measuring Informal Employment (1): The National Labor Force Survey (Sakernas)
The Indonesias Labor Force Survey (in Indonesian acronym called Sakernas) was a household survey conducted annually by BPS: - 1986-1993: Quarterly (Feb, May, Aug, Nov) - 1994-2001: Yearly in August - 2002-2004: Quarterly (Feb, May, Aug, Nov) and Yearly in August - Since 2005: Conducted in Semester with sample 2005 and 2006 Feb and August: 68,000 hhs 2007 Feb: 68,000 hhs and August: 285,000 hhs 4 2008 Feb: 68,000 hhs and August: 285,000 hhs

Measuring Informal Employment (2): The National Labor Force Survey (Sakernas)
Respondents: Population aged 10 years and published at 15 years over (minimum working age) Labor Concept: Referred to ILO Recommendation Objective: to provide an absolute and rate data on labor force at national and provincial level Coverage: all rovinces in Indonesia Since 2007, the sample in every August Round was inceased to provide estimation at district/regency level.
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Measuring Informal Employment (3): Concept & Definition used in Sakernas


Workng Aged Population: Population 15 years old and over Working: An economic activity done by a person who worked for pay or assisted others in obtaining pay or profit for the duration at least one hour during the survey week Unemployment: population who are not working at the moment, however looking for job; included: established a new business/firm, hopeless of job and have a job in future start Underemployment: Population worked under normal working hours (< 35 hours a week) 6 Informal Sector: Concept of Informal sector.doc

Measuring Informal Employment (4): Sampling Methodology of Sakernas: 2001-2007 Sampling frame used was the master sampling frame of census blocks and the sampling frame of all households in the selected census block. The master sampling frame for census blocks was based on the result of the 2000 Population Census. Census Blocks is an enumeration area consisted of around 80-120 households with clear boundaries Sampling design: two stage probability proportional to size (pps) sampling, both for urban and rural areas. In the first stage, sample of n units of census blocks were selected with pps from N units, both for urban and rural areas. In the second syage, from each selected census block, 16 hhs were selected 7 using linesr systematic sampling.

Measuring Informal Employment (5): Method of Estimation in Sakernas: 2001-2007 Estimation of Total Characteristics
~ Ph Yh = 16 n h

i =1

nh

16

j =1

1 A hij

A hij

k =1

y hijk

~ = Ph y h

Variance estimation of total characteristics

n h (z hyi z hy ) v (Y h ) = n h 1 i =1
nh

Measuring Informal Employment (6): Sampling Methodology of Sakernas: 2008-2010 Sampling Design: The 2008-2010 Sakernas use two stage pps sampling, applying a panel survey and rotation system, so that the same household will be enumerated in the next period until 2010 Sampling Frame:
the selected census blocks of the 2007 Sakernas . the name of the household head resulting from listing in August 2007.

Divided into 2: for province level estimation (Feb) complementary census blocks
+ province CB for kabupaten estimation
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Measuring Informal Employment (6): Sampling Methodology of Sakernas: 2008-2010

Forming the Census Blocks Sample Packages


For province level estimation consists of 4 sample packages (1, 2, 3, 4) 1.091 census blocks each Complementary Census Blocks consists of 2 packages (5 and 6) 6.977 census blocks each The forming of census blocks sample packages:
independently done in urban & rural areas
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Measuring Informal Employment (6): Sampling Methodology of Sakernas: 2008-2010

Household Updating and household listing Updating


for every the selected CB of the 2007 Sakernas

Listing
for all additional census blocks

Updating of Household Frame and Household Listing in the first stage :


" in the middle of January 2008 for Census Block Sample Packages numbered 1, 2, 3, dan 4

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Measuring Informal Employment (6): Sampling Methodology of Sakernas: 2008-2010

Household Updating and household listing Sample groups based on the results of updating and listing in stage I:
Package 1: Package 2: Package 3: Package 4: 3 household sample clusters $ A, E, and I. 2 household sample clusters $ B and F. 2 household sample clusters $ C and G. 2 household sample clusters $ D and H

Updating of household frame and listing of household in Stage II:


in the middle of July 2008 for census blocks sample package numbered 1, 2, 3, 4, 5, and 6 12

Measuring Informal Employment (6): Sampling Methodology of Sakernas: 2008-2010

Household Updating and household listing Listing of household for the additional census blocks is only done in packages 5 and 6 Updating and Listing Results (packages 5,6)
For sampling frame of household sample selection For forming the household groups

The resulted sample packages:


Package 5: 2 clusters $ J and L Package 6: 2 clusters $ K and M
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Measuring Informal Employment (6): Sampling Methodology of Sakernas: 2008-2010

Household Updating and household listing Result of updating on packages 1,2,3, and 4
For anticipating an household sample addition

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Measuring Informal Employment (6): Sampling Methodology of Sakernas: 2008-2010

Household Sample Rotation


2008 Census Packag Block e Feb. Aug. Province level estimat e Comple mentary 1 2 3 4 5 6 A B C D E B+ C+ D+ J K 2009 Feb. E+ F C+ D+ Aug. E+ F+ G D+ L K+ 2010 Feb. E+ F+ G+ H Aug. I F+ G+ H+ L+ M

+ : household sample which have been adjusted by the household 15 population in the ongoing period.

Measuring Informal Employment (7): Method of Estimation in Sakernas: 2008-2010 Estimation of Total Characteristics by age group in each district
~ Phi Yhi = 16 nhi
i. 15-19 year ii. 20-24 year iii. 25-29 year iv. 30-34 year v. 35-39 year

1 a j =1 k =1 hij
vi. vii. viii. ix. x.

nhi 16

ahijk l =1

y hijkl

~ = Phi y hi

i= age group; h=urban, rural


40-44 year 45-49 year 50-54 year 55-59 year 60+ year

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Measuring Informal Employment (7): Method of Estimation in Sakernas: 2008-2010 Variance estimation of the difference between two period (Feb Aug)
x Var ( d ) = Var n + Var x y 2 Cov n y x y , n n y x

Applying replication method G Variance estimation: v = c (g ) where: g =1 = estimate of full sample, (g ) = estimate of the g-th replication, G = number of replication, c = constanta.

() (

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Measuring Informal Employment (9): Trend of Labor Force, Open-Unemployment, and Informal Employment in Indonesia: 2001-2007 The total number of labor force in Indonesia increased by average of 2 million people per year, and become 108.131 million in February 2007, indicating that Indonesian economy is a labor surplus economy. The open unemployment rate in Indonesia was quite high, around 8.1 % - 11.2 % during 20012007, indicating that a large portion of labor could not be absorbed in the economy
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Measuring Informal Employment (8): Trend of Labor Force, Open-Unemployment, and Informal Employment in Indonesia: 2001-2007 The employment in informal sector were quite dominant Indonesias economy since 2001, around 63 % since 2004. About two third of them worked in agriculture sector, indicating that agriculture sector provide a safety valve for employment in Indonesia. However, according the result of National Socio Economic Survey in 2007, 53 % of the poor households in Indonesia worker in agriculture sector, indicating that informal sector , particularly in agriculture sector was not able to solve the problem 19 of poverty in Indonesia.

Measuring GDP for SMEs (1): Concept of SMEs


Law and regulation
Law no. 9/1995 on Small Enterprise Presidential decree no. 10/1999 on Medium Ent.

SMEs criterion are based on annual sales


Small Enterprise is an economic activity which performed by own-account worker, household, or other quasi-corporation producing goods & services with an annual sales of Rp. 1 billion or less. Medium Enterprise is an economic activity performed by own-account worker, household, or other quasicorporation producing goods & services with an annual sales ranging between Rp. 1 billion to Rp. 50 billion. 20

Measuring GDP for SMEs (2): Statistical Unit


Based on Law No. 9/95 & Pres.decree No. 10/99, only annual sales (omzet) are used to classify scale of enterprises
Micro/Small Cutt-off sales = Rp 1 M Medium/Large

Nonregistered business

Registered business

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Measuring GDP for SMEs (3) : Data Sources


Economic census (1996, 2006) Agriculture census (1993, 2003) Other annual special SME-surveys

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Measuring GDP for SMEs (4): Data Treatments


2006 Economic Census employed field enumeration based on establishment approach While SMEs use enterprise approach; therefore, enterprise with business affiliations (such as branch office, ancillary unit, factory, etc) are treated as one entity
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Measuring GDP for SMEs (5): Economic Classification of Indonesias SME


Industry

Description
Agriculture, estate crops, livestock, hunting & forestry, fishery Metallic & non metallic minerals, quarrying Mfg. of food, beverages, tobacco. textile, leather, footwear, wood, paper, etc. Non-PLN2 electricity, water supply company owned by local govt. Residential & non residential construction (non-AKI) Wholesale & retail trade, hotels, restaurants Transport, storage, & communication grameen banks, leasing, services allied to finance, business services Education services, amusement & recreational services, health, community, social & personal services

1. Agriculture 2. Mining & quarrying 3. Manufacturing 4. Utilities 5. Construction 6. Trade, Hotel & Restaurant 7. Transportation & communication 8. Financial Intermediaries 9. Services

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Measuring GDP for SMEs (6): Methodology


1. Production approach
GDP is measured as total value added of all economic activities Used in agriculture, mining & quarrying, manufacturing, utilities, services GDP is measured as total value of goods & services produced/used/sold by economic activities Used in construction, trade, hotel, restaurant

2. Commodity flow approach

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Measuring GDP for SMEs (7): Macro indicators of Indonesias SMEs in 2006
Economic growth of Indonesia was 5.5%:
SMEs grew 5.4% Large enterprises grew 5.6%.

The size of the economy was Rp. 3,338.2 trillion:


SMEs contribution was Rp. 1,778.7 trillion or 53.3% of total GDP Indonesia.

SMEs engines of growth:


construction (8.2%), services (8.1%), and mining & quarrying (7.9%).

The lowest growth was in agriculture (3.1%).

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Measuring GDP for SMEs (8): GDP at Current Market Prices & Contribution by typical enterprise unit, 2000-2006 During 2000-2006, the average contribution of SME is 55 % to total GDP of Indonesia
GDP at current market prices (in trillion rupiahs) & contribution
Small Medium SME Large Total 2000 541,19 38,94 218,90 15,75 760,09 54,69 629,68 45,31 1.389,77 100,00 2001 642,24 39,01 260,19 15,80 902,43 54,81 743,89 45,19 1.646,32 100,00 2002 742,57 40,76 294,49 16,16 1.037,06 56,92 784,77 43,08 1.821,83 100,00 2003 815,16 40,48 328,82 16,33 1.143,98 56,81 869,70 43,19 2.013,67 100,00 2004 900,47 39,22 371,01 16,16 1.271,48 55,38 1.024,35 44,62 2.295,83 100,00 2005 1.053,34 37,82 437,72 15,72 1.491,06 53,54 1.293,90 46,46 2.784,96 100,00 2006 1.257,65 37,67 521,09 15,61 1.778,75 53,28 1.559,45 46,72 3.338,20 100,00 27

Figures in italics are GDP contribution (%)

2003

small large
UB 43,19% UK 40,48%

Measuring GDP for SMEs (9) (billion Rp)


2003
UK small UM 815,156 40.48 328,822 16.33 1,143,978 56.81 869,697 43.19 2,013,675 100.00

2006
1,257,655 37.67 521,091 15.61 1,778,746 53.28 1,559,450 46.72 3,338,196 100.00
UM medium 16,33%

medium

UKM SME UB large JUMLAH total

large UB 46,72%

2006

small UK 37,67%

Figures in italics are GDP contribution (%)

UM Medium 15,61%

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Measuring GDP for SMEs (10): Contribution of typical enterprise unit by economic activities, 2005-2006
Sector 1. Agriculture, Livestock, Forestry, and Fishery 2. Mining and Quarrying 3. Manufacturing 4. Electricity, Gas, and Water Supply 5. Construction 6. Trade, Hotel, and Restaurant 7. Transportation and Communication 8. Financial Intermediary, Leasing, & Bus. Servic 9. Services Gross Domestic Product GDP without Oil & Gas Small 318 87,26 22 7,01 98 12,66 0,1 0,53 87 44,31 326 75,68 52 28,75 39 16,97 113 40,78 1.053 37,82 1.053 42,68 2005* Medium Large 31 8,63 9 3,02 89 11,56 2,0 7,62 43 21,77 89 20,65 43 24,01 108 46,98 23 8,15 438 15,72 435 17,62 15 4,11 277 89,97 585 75,78 24,5 91,86 66 33,92 16 3,67 85 47,24 83 36,05 141 51,07 1.294 46,46 980 39,70 Total 364 100,00 308 100,00 772 100,00 26,7 100,00 196 100,00 430 100,00 181 100,00 231 100,00 277 100,00 2.785 100,00 2.468 100,00 Small 374 86,84 29 8,15 117 12,45 0,2 0,53 110 44,20 378 76,08 69 29,84 45 16,71 136 40,22 1.258 37,67 1.258 42,25 2006** Medium Large 38 8,88 12 3,24 106 11,27 2,3 7,56 54 21,78 101 20,33 54 23,47 127 46,86 27 7,96 521 15,61 518 17,40 18 4,29 314 88,60 714 76,28 27,9 91,91 85 34,02 18 3,59 108 46,68 99 36,43 175 51,82 1.559 46,72 1.201 40,35 Total 430 100,00 355 100,00 936 100,00 30,4 100,00 249 100,00 496 100,00 231 100,00 272 100,00 338 100,00 3.338 100,00 2.977 100,00

Activities in Agriculture, trade, hotel & restaurant, & services sectors are mostly dominated by SME Small enterprise mostly engage in trade, hotel & restaurant and agriculture, while Medium ent. Mostly engage in financial intermediaries and manufacturing sector 29
Figures in italics are structure (%)

Measuring GDP for SMEs (11): SME-GDP Growth, 2000-2006


As the economy begins to recover, large-scale enterprise leads national economic growth
GDP at 2000 constant prices (in trillion rupiahs) and its growth
Small Medium SME Large Total 2000 541 219 760 630 1.390 2001 563 3,96 229 4,59 792 4,15 649 3,04 1.440 3,64 2002 589 4,61 241 5,27 830 4,80 676 4,13 1.505 4,50 2003 2004 2005 2006 619 650 689 726 5,17 5,05 5,94 5,38 257 274 291 307 6,68 6,65 6,06 5,44 876 924 980 1.033 5,61 5,52 5,97 5,40 701 732 771 814 3,77 4,42 5,32 5,60 1.577 1.657 1.751 1.847 30 4,78 5,03 5,68 5,48 Figures in italics are growth rates (%)

Measuring GDP for SMEs (12): Source of Growth 2003-2006


6.00

4.78
Percent
4.00
2.12

5.03
2.22

5.68
2.50

5.48
2.42

2.00

0.78 SME 1.88 2,66

0.83 SME 1.97 2,80

0.94

0.91 SME 3,07

2.24

SME 3,18

2.16

0.00 2003 2004 2005 2006

Small UK

Med UM

Lrg UB

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Measuring GDP for SMEs (13): Improvement in the future


Optimizing 2006 Economic Census
Improving nominal level of SMEs Benchmarking for updating the coverage of GDP

Classification update from ISIC rev.2 to ISIC rev.4 Spatial data: computing for GDP-SMEs by regional (in level of provinces, municipalities, regencies)

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Concluding Remarks (1)


Informal sector plays an important role in absorbing the excessive labor supply in Indonesia, where around 63 % of the labor worked in informal sector since 2004 The conribution of small enterprises to GDP in 2006 was 37,7 %, and combining with medium enterprises, SMEs contribution to total GDP in 2006 was 53,3%.

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Concluding Remarks (2)


Sakernas is a good source of data in Indonesia to provide data on informal employment; while enterprises surveys ( such as SUSI) and censuses (agriculture and economic census) were good sources of data in measuring GDP of SMEs. To develop better policies in optimzing the role of informal sector in Indonesia, it is necessary to develop a method that linked informal employment and informal sector and poverty.
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