Trade affects men and women differently in Indonesia. New research offers critical insights for policymakers striving to create more inclusive trade strategies.
With TWCF funding, the Center for Indonesian Policy Studies (CIPS) aims to bridge the gap in understanding trade's social and regional impacts in Indonesia through a series of five econometric studies.
As part of this series, CIPS recently published a study by Donny Pasaribu of CIPS, Ridho Al Izzati of SMERU Research Institute and Joseph Marshan of Australian National University and University of Canberra.
We asked the authors to share key findings from their working paper, Trade and Gendered Labor Outcomes: Evidence from Changing Export Demand in Indonesia.
EXPLORE KEY TAKEAWAYS FROM THE STUDY BELOW; DOWNLOAD THE FULL WORKING PAPER HERE.
Trade liberalization has often been hailed as a pathway to economic growth, promising to create opportunities for all segments of the workforce. However, its impact on gender equality within the labor market is far from straightforward. Our recent study, supported by the Templeton World Charity Foundation (TWCF), explores how shifts in foreign demand influence gendered labor outcomes in Indonesia. This research sheds light on the nuanced ways trade affects men and women differently, offering critical insights for policymakers striving to create more inclusive trade strategies.
The primary aim of our research was to uncover how changes in foreign demand affect local labor markets in Indonesia, particularly through a gender-sensitive lens. We use change in exports value as a proxy of foreign demand shocks. Despite Indonesia’s significant strides in trade liberalization over the past few decades, gender disparities remain deeply entrenched. Female labor force participation (FLFP) has stagnated at around 55%, and women consistently earn about 20% less than their male counterparts. These persistent inequities underscore the need to reassess how trade policies impact women’s employment and economic opportunities.
To address this, we used a two-stage least squares (2SLS) approach, analyzing provincial-level labor market outcomes over two decades (1995 to 2015). By linking Indonesia’s labor market survey (SAKERNAS) with export data from UNCOMTRADE, we were able to assess how changes in export shaped employment trends, wage disparities, and the composition of labor-intensive industries. This study is part of a broader initiative by TWCF, aimed at ensuring that trade policies address systemic inequities rather than focusing solely on export growth.
Our study reveals that changes in export have had limited success in reducing gender gaps in Indonesia’s labor market. While increased exports theoretically may have the potential to benefit female-dominated sectors, most export growth during the study period occurred in male-dominated, resource-based industries like coal and palm oil. These sectors often lack pathways for women’s economic empowerment, resulting in adverse employment effects for female workers. The data showed that for every increase in exports, approximately 7,180 fewer women were employed on average. This highlights a significant and troubling trend: trade policies that prioritize resource-based exports may inadvertently exacerbate existing gender inequities.
The dominance of resource-based sectors in Indonesia’s export profile has played a crucial role in shaping these outcomes. These industries, which rely heavily on physical labor, are traditionally seen as male-dominated and present significant barriers to women’s participation. By contrast, industries like textiles, which are more female-dominated, have seen stagnation in growth due to global competition and technological shifts. This dynamic has left women with fewer opportunities to benefit from trade-driven economic expansion. One particularly concerning finding was that married and less-educated women were disproportionately affected by changes in export compared to their men counterparts. Cultural norms in Indonesia often place married women in caregiving roles, which reduces their likelihood of remaining in the workforce when economic conditions favor male employment. Furthermore, less-educated women face significant barriers to entering high-skill sectors, leaving them vulnerable to job losses in industries that prioritize physical labor over technical skills. These findings highlight the ways in which structural inequities and social expectations intersect with economic trends, leaving certain groups of women especially vulnerable to trade shocks.
Resource-based sectors offer limited opportunities for women due to their reliance on physically demanding roles, which are traditionally perceived as male-dominated. For example, the coal mining industry employs predominantly men, leaving women with fewer avenues for participation. The focus on these industries has not only failed to close gender gaps but may have widened them by channeling economic benefits to male workers at the expense of female labor market inclusion. Meanwhile, industries like textiles, which historically provided significant opportunities for women, have faced global competition and stagnant growth. These dynamics underscore the structural barriers that prevent resource-based economies from fostering gender equity.
Focusing solely on export performance without considering its broader implications can inadvertently perpetuate gender disparities. Trade policies in Indonesia often emphasize resource-based exports, but this narrow focus overlooks the structural barriers that women face in accessing economic opportunities. Policymakers must adopt a more holistic approach that goes beyond promoting exports. A broader strategy should prioritize diversification, ensuring that growth is not confined to male-dominated sectors. Investments in education and skills training tailored to women can equip them to thrive in emerging industries, creating pathways to meaningful participation in the workforce. Lowering childbearing costs shall drive female labor force participation hence leading to more inclusive trade policies. Many married women are forced to choose between caregiving responsibilities and employment. Policies that provide childcare support or offer flexible working arrangements can enable these women to remain active in the workforce. By addressing these structural barriers, trade policies can create a more equitable and inclusive labor market.
To make trade more inclusive, a focus on empowering women through targeted initiatives is essential. Female entrepreneurship can be encouraged through programs that provide access to finance and training, helping women start and sustain businesses in sectors with growth potential. Incentivizing companies to hire more women through tax benefits or subsidies can also shift hiring practices in favor of gender balance. Moreover, strengthening social protections, such as ensuring fair wages and safe working conditions, is critical to creating a supportive environment for women in the workforce. Increasing women’s representation in trade-related decision-making bodies can also amplify their voices and ensure that policies reflect their needs and challenges. When women are included in leadership and policymaking, their perspectives can guide the development of strategies that address systemic barriers to their participation.
Indonesia’s experience mirrors the challenges faced by other developing nations with resource-based economies. For instance, Brazil has struggled to achieve meaningful gender equity despite significant trade liberalization, as male-dominated sectors like agriculture and mining dominate its export portfolio. Similarly, Ethiopia has found it difficult to transition women from informal to formal employment, even in industries with growing export demand. These parallels highlight the importance of context-specific policies that address the unique challenges each country faces in making trade more inclusive for women.
While this study provides valuable insights, further research is needed to fully understand the gendered impacts of trade. One area that warrants deeper exploration is the role of intrahousehold dynamics in shaping women’s labor market decisions. Additionally, examining how technological advancements could create new opportunities for women in traditionally male-dominated sectors would be invaluable. Longitudinal studies that track the long-term effects of trade liberalization on gendered labor outcomes could also provide a more comprehensive understanding of these dynamics.
The findings of this study highlight the urgent need for a paradigm shift in how trade policies are designed and implemented. By prioritizing gender equity and empowering women within the workforce, Indonesia can unlock untapped economic potential while fostering a more inclusive society. Trade policies must evolve to address systemic barriers and create opportunities for all, ensuring that economic growth translates into shared prosperity. Let us redefine trade as a tool for empowerment—for women, for communities, and for sustainable development.
