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A Critique of the Orthodox Approach to Indonesia's Growth and Employment Problems and Post Keynesian Alternatives

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  • Anis Chowdhury
  • Iyanatul Islam

Abstract

Indonesia continues to bear the scars of the 1997 financial crisis, with the highest open unemployment rate in Southeast Asia. The orthodox interpretation is that the post-crisis era is typified by overly generous labor legislation granting higher minimum wages and other provisions; the rise in real wages adversely impacted the investment climate and employment growth. However, detailed sectoral analysis reveals very little evidence of a wage‐driven profit squeeze. This article contends that Indonesia's current unemployment woes are best understood as the reflection of a demand‐constrained economy, where important sectors are operating at around 70 percent of their capacity. It, thus, outlines an alternative macroeconomic policy framework in the Post Keynesian tradition.

Suggested Citation

  • Anis Chowdhury & Iyanatul Islam, 2011. "A Critique of the Orthodox Approach to Indonesia's Growth and Employment Problems and Post Keynesian Alternatives," American Journal of Economics and Sociology, Wiley Blackwell, vol. 70(1), pages 269-299, January.
    • Handle: RePEc:bla:ajecsc:v:70:y:2011:i:1:p:269-299
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    File URL: http://hdl.handle.net/10.1111/j.1536-7150.2010.00771.x
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    References listed on IDEAS

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    5. Kenneth N Kuttner, 2004. "A Snapshot of Inflation Targeting in its Adolescence," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Simon Guttmann (ed.),The Future of Inflation Targeting, Reserve Bank of Australia.
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    Cited by:

    1. Vishnu Padayachee, 2019. "Can progressive macroeconomic policy address growth and employment while reducing inequality in South Africa?," The Economic and Labour Relations Review, , vol. 30(1), pages 3-21, March.

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