Essays on Inclusion in Indonesia: Concept, Evidence, and Policy

Abstract

Seizing development that is accessible for all requires a thorough understanding of welfare concepts and measurements. The objective of international development has shifted from economic growth (often measured as changes in per capita income) to inclusive development (often referred to as progress in achieving various wellbeing elements). This highlights the urgency in generating economic progress that would translate into an equal distribution of not only material resources, but also non-material resources. Many efforts have been given to the understanding of materials-based welfare notions such as income poverty or inequality. The gap in our understanding of the non-material aspect of the concept of welfare, such as the empowerment and participation of the low-income and disadvantaged groups in seizing opportunities to achieve wellbeing needs to be addressed. Achieving inclusive development would thus require an in-depth understanding of all individuals™ participation in the process, popularly known as social inclusion. This thesis focuses on the concept of inclusion to understand deficits in development, and provides an in-depth investigation of the concept, as well as evidence and policy lessons in the area of inclusion. The objective of this thesis is to enhance our understandings of inclusion, with a particular focus on its economic domain. First, it sets out to provide a greater clarity of the concept of inclusion as key to the understanding of underdevelopment. Disadvantaged groups often face barriers to participating in good- quality education, building skills, and finding appropriate jobs in the labour market. Motivated by this, this thesis also investigates deficits in economic inclusion, with a focus on the labour market. Lastly, it examines a policy aimed at achieving inclusiveness in the education sector. The main research questions are the following: (1) How can we use the concept of inclusion to better understand development deficits? (2) What factors explain economic inclusion? (3) Does decentralization facilitate an inclusive progress in improving the quality of education? To achieve the objectives, this thesis takes Indonesia as a country case study. To answer the first research question, the study first undertakes a systematic literature review. It examines the extant debate on the twin concept of exclusion vis-a- vis inclusion. It starts with a critical review of the evolution of the exclusion concept, identifies the key schools of thought, outlines the key debates, and proposes a conceptual framework of inclusion as an alternative to that of exclusion. The paper argues that inclusion is not the opposite of exclusion and can serve as an alternative to the understanding of underdevelopment. Taking the case of social assistance in developing countries, the paper illustrates the application of an inclusion lens in forming a social policy. The second question focuses on a form of economic exclusion in the context of the labour market by taking the case of Indonesia. The paper asks the question as to whether there is job polarisation in Indonesia in the midst of structural transformation and growth, whether declining and subsequently levelling off of earnings inequality is good for long-term economic health, and how the welfare of low-earning workers is influenced by the interplay of structural economic characteristics and policy interventions in the form of minimum wages. The study utilizes household data of the Indonesian Family Life Survey (IFLS) covering the 2000-2014 period. It applies a decomposition technique to decompose the changes in wage inequality into the part that is explained by the shift in workers characteristics and the part that is accountable for the change associated with those characteristics. I found that declining earnings inequality was largely driven by declining returns to skills. The results also indicate the relatively low ability of the economy to absorb high-skilled workers and a relatively high mismatch between skills supplied and skills demanded in the labour market. As such, the chapter suggests that economic inclusion is not necessarily a boon for long-term economic health, if it is driven by falling returns to education. Finally, the third question looks at the effectiveness of a policy aimed at achieving inclusion. Taking the case of decentralization as an example of a policy aimed at achieving inclusive education, the paper questions the impact of decentralization on the quality of education in Indonesia. It uses data from the IFLS and difference-in- difference (DID) and semi-parametric difference-in-difference (SDID)methods to assess the impact. The paper found that decentralization leads to an improvement in education outcomes among marginalized private schools. The results shed light on the social exclusion phenomenon that is discussed and analysed in the context of theoretical debate, empirical evidence, and policy implication. The thesis highlights the added value of investigating the concept of inclusion as an objective for socio-economic development. It then provides evidence of deficits in economic inclusion in Indonesia's labour market in the absence of inclusive growth. Next, it examines the effectiveness of a policy aimed at ensuring inclusiveness and quality in the education sector. The results reveal the importance of inclusion to address deficits in development. To conclude, the thesis offers a novel approach to inclusion and provides greater clarity on the notion. The thesis demonstrates that inclusion should be approached as the extent of the full participation of individuals, particularly disadvantaged groups, in the activities of their society, and should not be approached as the opposite to exclusion. Setting inclusion as the objective for development helps transform our thinking and choice of development policies, from focusing on material redistribution to non-material redistribution; and aimed at increasing the empowerment of disadvantaged groups. The research also demonstrates that current development processes generate deficits in economic inclusion; low-income workers were unable to benefit from real income growth due to a high level of skills mismatch in the labour market. Also, achieving inclusion, within the context of inclusive progress in the quality of education, would require a transformative structural policy that involves a certain degree of transfer of authority to civil institutions that directly engage with the community. Overall, this thesis provides important lessons learned for both scholars and policymakers who are interested in what, when, and how inclusion is achieved. Inclusion is a feature of a just society that provides a means to inclusive development.

Date of Award	31 Jan 2019
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Armando Barrientos (Co Supervisor) & Ralitza Dimova (Main Supervisor)