Broken Ladders? Labour Market Inequality in Indonesia and India

This paper examines labour market inequality in Indonesia and India, using a common conceptual approach that draws on a job ladder framework. In the framework, I differentiate between self-employment and wage-informal employment and between formal, upper-tier informal and lower-tier informal employment. I find that Indonesia and India both have job ladders that are narrow at the top and broad at the bottom, with the share of workers in lower-tier informal jobs significantly exceeding the share of workers in upper informal and formal employment. However, more people are in formal wage-employment in Indonesia than in India. Unlike in Indonesia, where the share of wage-employment in total employment increased from 2001 to 2020, the corresponding share in India was relatively constant from 1988 to 2022. Sharp disparities are evident in the earnings of workers in different tiers of the labour market in Indonesia and India, and evidence of convergence in earnings is limited between lower-tier informal workers and formal workers, at least in Indonesia. I also find that females and less-educated workers occupy the lower tiers of the labour markets in the two countries.