NOBEL PRIZE IN ECONOMICS IN 2010 AND INDONESIAN ECONOMY

By Nugroho SBM

The Nobel Prize Committee has announced the 3 winners Nobel Prize in economics that are Peter A Diamond (70 years), a professor at MIT, Dale T Mortensen (71 years), a professor at North Western University, and Christopher A Pissarides (62 years) a professor at the London School of Economics. They are considered meritorious has found models of Diamond-Mortensen-Pisarides (DMP), which could explain why in many countries, including developed countries, unemployment remains high despite the high economic growth.

So far, unemployment in conventional economic theory is always regarded as an excess number of people willing to work (labor supply) over the need or demand for labor. But this theory fails to explain why high levels of unemployment in developed countries occured.

Through the DMP model, the three winners of 2010 Nobel economics tried to offer an analysis of unemployment which they call the "Theory of Friction". Unemployment occurs because of friction or friction caused by the various discrepancies. First, the discrepancy between the expectations of job seekers with those who need labor. As a result, on the one hand many companies can not obtain the best employees who according to his needs. But on the other hand many job seekers with the skills and education who will not work because it does not match the salary and job offer.

In the case of friction due to a mismatch between supply and labor demand is actually for those who have studied macro economics is not new. The discrepancy in economic theory could be due to education or skills mismatch between job seekers with the education and skills needed by institution or company. The discrepancy is also due to the imperfections of information that occurred in the job market.

The second discrepancy is between the government policy in the financial sector and the needs of job creation. Pissarides - one of his economics Nobel Prize winner 2010 - had criticized U.S. government policies and many other governments in the world to bail out the financial firms who only plays in financial instruments that do not absorb the labor force. Instead the companies in the real sector absorb the labor force do not get access to funds or adequate bailout.

The third discrepancy concerns the economic policies that many countries give allowances or vouchers for the unemployed. That policy - the three winners of Nobel economics by 2010 - a very counter-productive to efforts to reduce the number of unemployed. The policy was counterproductive to efforts to decrease the unemployment rate because people though actually capable of and there is a chance but it will not work because of unemployment could still get a guarantee from the government.

For Indonesia
For Indonesia, what's been developed by the three winners of the Nobel Economics in 2010 would have been very relevant. Currently in Indonesia there are at least 26 million people openly unemployed (meaning at all does not work). Interestingly, most of the openly unemployed are now more educated. Unemployment in Indonesia (those that did not work) at this time according to the level of education are mostly high school graduates by 36 percent and "defeat" those who are primary school graduates at 32.74 percent.

In addition, unemployed graduates also do not lose large amounts of till now amounted to 400,000 people. Although relatively small, but the unemployed with tingakt undergraduate education is still alarming because of the small amount of scholars but the level of unemployment is high.
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The question arises whether there is a discrepancy between education education job seekers with the education needed by those who need labor? The answer is yes. High school graduates are not prepared to immediately find a job but are expected to continue into higher education. Graduated from SMK (Vocational High School) was the one who actually prepared to work right away. So actually there is something wrong here. Many high school graduates who apparently because of "prestige" even though his parents are not able to prefer a school in high school. When he graduated high school they can not go to college because tuition is more expensive now (including in public universities). So it should be encouraged for students who can not afford to study at vocational high school so that they ready to work.

Especially for college, it needs a true introspection education curriculum is in conformity with that required by the market? Age was busy talking about education that "Link and Match" (related and appropriate) to the needs of the labor market. Apparently this needs to be reviewed again today.

About the discrepancy between government policy in the financial sector with the needs of job creation is also relevant to Indonesia. Many times the government and BI bailout for the banking sector - the last bailout for Century Bank, a number of very large. But the government is not so concerned with companies in the real sector to absorb a lot of manpower.

While the incompatibility of allowances for the unemployed with policies to reduce unemployment, is still relevant. Now this government prefers to provide direct cash assistance (BLT) for the community than the creation of more labor-intensive projects. Although the provision of BLT need in an emergency but in the long run will make people lazy to work or seek work.

(Nugroho SBM, a lecturer at Economics faculty at Diponegoro University, Semarang) ecturer