Essays on education, employment, wages, and earnings: A case study of Indonesia.

Abstract

This dissertation examines the role and responsibility of the educational system as a component of public policy directed towards the attainment of a more equal income distribution, with special reference to Indonesia. It contains three separate essays. The first essay presents a descriptive analysis of the nature and magnitude of the effects of education expansion on labor supply, employment, and income inequality. The study shows that education has expanded rapidly in Indonesia between 1960 and 1990, and has altered substantially the educational structure of the labor force. It also identifies increases in labor participation among all women and among the more educated men, and decreases in participation among the less educated men; reflecting both the positive effects of education on labor participation and the widening schooling opportunity. During the period, income inequality and poverty have declined, and the analysis concludes that part of the decline is attributable to education expansion. The second essay looks specifically at how education expansion and changes in the distribution of schooling affect the distribution of earnings. The analysis is based on the National Labor Force Survey 1987. The study shows both increasing mean and decreasing inequality in education across birth cohorts. It also shows that education expansion has resulted in decreasing returns to schooling, a phenomenon that is expected to increase the income equalizing effect of education expansion. The main finding is in support of that of the first essay, that education expansion, specifically decreasing inequality of schooling, explains much of the decreasing income inequality across birth cohorts. The third essay goes further to look into the roles of changes in demand for and supply of workers with different labor market characteristics: education, age, and gender, in the determination of each group's relative wage. The analysis is based on the National Social and Economic Survey 1982 and the National Labor Force Survey 1987. The study is less successful in demonstrating the roles of changes in supply and demand factors in explaining the changes in relative wages among various groups of workers, during the period of 1982-7. Nevertheless, it reveals that the wage premium for education among the younger workers has fallen, which is consistent with the decreasing returns to schooling documented by the second essay.