THE EFFECTS OF THE CONSTRUCTION PROCESS ON THE LOCAL ECONOMY IN INDONESIA: A SYSTEM DYNAMICS APPROACH

ABSTRACT

The construction industry is a significant contributor to the process of development in developed and developing countries.  The construction products (roads, railways, schools, offices, shops, factories) provide the necessary public infrastructure and private physical structures for many productive activities such as services, commerce, utilities and other industries.  The industry is not only important for its finished product.  It also employs a large number of people (directly and indirectly) and therefore has an effect on the economy of a country/region during the actual construction process.

This paper examines work done to determine the detailed effects of investing in construction.  The effects considered are those on the micro-economy of the people directly employed by the construction industry through to the macro-economy of the region.

The work is based on surveys, which were carried out in Indonesia to investigate how the money invested in construction flows through the economy.  It also examines at which point in the construction process income is received, and at which point it is spent.  The results of these surveys were analysed using statistical methods and were used to build a system dynamics model.

A system dynamics is a methodology for analyzing and understanding how complex systems change over time.  This technique is developed to model the effects of the construction process on the local economy. Its use to compare labour intensive and equipment based construction methods.  It was found that the construction sector provides a very important contribution to the national and local economy through its job generating ability for local people as multiplier effects.  A system dynamics model developed is able to predict the effects of changes in policy on expenditure in the micro scale.

Key words: construction industry, system dynamics, labour intensive construction, micro and macro economy

"THE EFFECTS OF THE CONSTRUCTION PROCESS ON THE LOCAL ECONOMY IN INDONESIA: A SYSTEM DYNAMICS APPROACH"

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MODELLING of CONSTRUCTION MIGRANT LABOUR

INTRODUCTION

The globalization that happened in the world at this time did not only cause the rotation of investment and fast information, but also can be related to the problem of labour. Today, the world's population in great numbers leave their homeland to fill up the work in other countries which offered much higher wages. In Asia, according to the data from the Newsweek magazine the edition on October 17th  1994, millions of foreign labour (the Asian peer) filled up sectors of economics in this territory. These migrants generally come from countries where the level of the labour’s wage is low. Tobing (2004) recorded that most of them are from Indonesia (800 thousand), followed the Philippines (600 thousand), Bangladesh (400 thousand), and Thailand (400 thousand).

The labour migration flow was basically the result of three conditions, which were different in developed countries, the newly industrialized countries,  as well as the poor and developing countries. The success of economy in developed countries pushed the wage and the working condition to the higher level. In the newly industrialized countries, the acceleration of economy caused the demand of skilled, semi skilled and low skilled labour increasing significantly. Generally, skilled labour was brought in from developed countries, whereas the low skilled labour came from the poor and developing countries. In the meantime, in the poor and developing countries, the difficulty to get a job and the low wage pushed the migration to the other countries (Suharto, 2005).

The number of labour in Indonesia during 2006 was 106,281,795, of which 11,104,693 people were unemployed (BPS, 2006). The increase of number of the migrant labour could become a temporary solution for this unemployment problem. Indonesia sent approximately 500,000 labours overseas, and approximately only 0.5% of them went through the legal route each year. During this year, Indonesia was a country which had the biggest number of labour in the construction sector. BPS (Statistics Indonesia) recorded in February 2006, the number of Indonesian construction labour was 4.47 million people. Considering the slow growth of the Indonesian economy, the construction industry in Indonesia became not more developing. This condition proportionate was inside out with the number of construction labour that was available. Therefore, remembered employment opportunities in Indonesia that very few, then Indonesian construction labours afterwards tried to look for the work to neighbouring countries that had bigger work opportunity, like Malaysia and Singapore (Tejo, 2003).

Malaysia was a country that often used construction labour from Indonesia. During 2005, Malaysia used 300,000 labours in the construction sector from Indonesia. Most of them generally have low skill level. Malaysia also employed construction labours from Singapore and the Philippines, but labour from these countries generally gets the higher wage than labour from Indonesia. This could be caused by the fact that they generally have the registration and certification of construction skill that was acknowledged in Malaysia (Moedjiman, 2007). In contrast, BPS recorded in February 2006, there were only 100,000 out of 4.47 million Indonesian construction labours which had joined construction trainings, and there were only less than 10,000 who had the certificate of work skills or the expertise (BPKSDM, 2006).

"MODELLING of CONSTRUCTION MIGRANT LABOUR" (Case study Indonesia and Malaysia)
Henny Pratiwi Adi, Mochamad Agung Wibowo, and Jati Utomo Dwi Hatmoko2
Doctoral Programme Civil Engineering
Diponegoro University

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THE CONTRIBUTION OF THE CONSTRUCTION INDUSTRY TO THE ECONOMY OF INDONESIA: A SYSTEMIC APPROACH

ABSTRACT

Construction industry contributes significantly in terms of scale and share in the development process for both developed and developing countries.  The construction products provides the necessary public infrastructure and private physical structures for many productive activities such as services, commerce, utilities and other industries.  The industry is not only important for its finished product, but it also employs a large number of people (directly and indirectly) and therefore has an effect on the economy of a country/region during the actual construction process.

This research examines work done to determine the detailed effects of investing in construction.  The effects considered are those on the micro and macro economy of the people directly or indirectly employed by the construction industry

The work is based on surveys, which were carried out in Indonesia to investigate how the money invested in construction flows through the economy.  It also examines at which point in the construction process income is received, and at which point it is spent.  The results of these surveys were analysed using statistical methods and combined with results from economic input-output modelling.  The results were then used to build a system model.

A system model is developed to examine its use to compare labour intensive and equipment based construction methods.  It was found that the construction sector provides a very important contribution to the national and local economy through its job generating ability for local people as multiplier effects.  A system model developed is able to predict the effects of changes in policy on expenditure in the micro scale.

Key words: construction industry, labour intensive construction, micro and macro economy

"THE CONTRIBUTION OF THE CONSTRUCTION INDUSTRY TO THE ECONOMY OF INDONESIA: A SYSTEMIC APPROACH"
Ir.M. AGUNG. WIBOWO, MM, MSc, PhD
Construction Management, Civil Engineering, Department
Diponegoro University, Indonesia

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