32970 INCOME-GENERATING CHARACTERISTICS OF INDONESIAN HOUJSEHOLDS* by Dov Chernichovsky Oey Astra Meesook The World Bank July 1984 *This paper was prepared under Research Project 672-19, "Poverty, Fertility and Human Resources in Indonesia". The authors would like to express their appreciation to the Central Bureau of Statistics of Indonesia for making available the SUJSENAS 1978 data tapes to the project. Income-Generating Characteristics of Indonesian Households I. Introduction This paper uses data from a household sample survey to gain some insights into how the Indonesian population makes a living. For major categories of households it looks at the composition of household incomes and the degree to which they rely on different sources of income, including the nature of the types of enterprises run by households. It also examines household members' labor inputs into different income-earning activities and the contributions of household members in different age-sex categories in terms of hours worked and household incomes. It analyses the determinants of household members' labor force participation and also the roles of supplementary workers and of secondary jobs. The study uses data from the second (May) round of the National Socioeconomic Survey of 1978 (SUSENAS 1978) which collected detailed information on more than 6,000 households and the characteristics of individual household members. Details on the survey have been written up elsewhere. II. Sources of Household Income In this paper we classify households into four groups according to whether they are in an urban or rural location and whether or not they operate an agricultural enterprise, irrespective of whether the enterprise constitutes the household's major source of income. In 1978, 16.6% of all Indonesian households were in urban areas and close to 90% of these had no agricultural enterprises. Of the 83.4% of households in rural areas, roughly two-thirds operated agricultural enterprises. Thus one in three rural households is -2- completely dependent on nonfarm sources of income. In the country as a whole, 58% of households operate some kind of agricultural enterprise, the remaining 42% do not. (See Table 2.1.) The total income of each household consists of income from the agricultural enterprise, if any, and the sum of the incomes earned by the individual household members from other sources. Agricultural enterprise income is not attributed in the survey to any particular household member and, unlike other sources of income which have a reference period of one month, refers to the three-month period preceding the survey. The monthly income for the household is estimated by using one-third of the agricultural enterprise income for the three-month period. Incomes earned by household members other than that from the household's own farm can be broken down into that from the household members' primary occupations, that from their secondary occupations and that from property. Since information is available on the employment status and industry of each individual's primary job, we have further broken down income from household members' primary occupations into agricultural and nonagricultural wage incomes and nonagricultural self-employment income. Similar details are not available for secondary occupations. Table 2.1 shows the proportions of households in different categories which report incomes from the different sources. Because it is possible for households with farm enterprises to have no income from this source over the reference period of the survey, in this case the three months preceding the survey date, not all farm households are shown as having incomes from farm enterprises. Thus 51% of all households report farm enterprise income; the figure would be 58% if the reference period had been one year. Table 2.1: PROPORTIONS OF HOUSEHIOLDS WITH DIFFERENT SOURCES OF INCOME, BY HOUSEHOLD TYPE AND AREA OF RESII)ENCE, INDONESIA, 1978 URBAN RURAL INDONESIA Farm 1/ Nonfarm Total Farm 1/ Nonfarm Total Farm 1/ Nonfarm Total i of All Households 1.9 14.7 16.6 56.2 27.1 83.4 58.2 41.8 100.0 Z With Source of Income Farm Enterprise 71 0 8 88 0 60 88 0 51 Primary Occupation Agricultural wage income 9 4 5 18 49 28 18 33 24 1 Nonagricultural wage income 32 71 66 12 32 19 13 46 27 L Nonagricultural self-employment income 24 37 36 19 34 24 19 35 26 Secondary Occupations 30 7 9 31 14 26 31 12 23 Property income 10 4 5 4 1 3 4 2 3 1/ A farm household is one with an agricultural enterprise. Source: Data tapes of SUSENAS 1978 (May round), Biro Pusat Statistik, Jakarta. -4- The table shows the great reliance of Indonesian households on nonfarm sources of income, where these are defined to include all nonagricultural, as well as agricultural off-farm, sources. 1/ In rural areas, 28% of households have wage income from agriculture; the figure is 49% for nonfarm households and still 18% for farm households. Urban households rely mainly on nonfarm income sources, and especially on nonagriculture. It can also be seen that a larger proportion of farm households have incomes from secondary occupations, 31% compared with 12% in urban and rural areas combined, and similarly for property income. Table 2.2 looks at the composition of total household incomes by source for different categories of households. In terms of total income, it can be seen that rural households have on average only slightly over half the income of urban households. Within rural areas, however, nonfarm households have substantially lower incomes than farm households and constitute the poorest group out of all the household categories considered. Their major sources of income include agricultural wage income as well as nonagricultural wage and self-employment income, in contrast to urban nonfarm households which do not rely very much on agricultural wage income. Secondary occupations are more important sources of income for farm households in both urban and rural areas. For Indonesia as a whole, agricultural enterprises are the most important source of income, accounting for over one-third of the total. Nonagricultural wage income contributes 29% and nonagricultural self- employment income 18% to total household income. 1/ Agricultural off-farm income refers to income from agricultural activities outside one's own farm. Table 2.2: SOURCES OF 11OUSE(OLD INC1) oME, BY H0OU SEHOLD) TYPE ANI) AREA OF RESIDENCE, INDONESIA, 1978 URBAN RURAI. INDONE1S iA Source of Income Farm 1/ Nonfarm Total Farm 1/ Nonfarm Total Farm 1/ Nonfarm Total Average Household Monthly Tncome (RupiaSi) Farm Enterprise 12,765 0 1,472 15,080 0 10,173 15,004 ( 8,725 Primary Occupation Agricultural wage income 640 694 688 1,181 5,133 2,467 1,163 1,572 2,171 Nonagricultural wage income 11,235 27,710 25,810 2,134 6,573 3,578 2,434 14,008 7,278 Nonagricultural self-employment income 6,166 13,288 12,466 2,142 5,249 3,153 2,274 8,077 4,702 Secondary Occupations 4,559 1,636 1,973 2,918 1,105 2,328 2,972 1,292 2,269 Property Income 1,283 345 453 379 258 339 409 288 358 TOTAL 36,648 43,673 42,861 23,834 18,318 22,038 24,256 27,237 25,503 Shares of Different Sources of licome (%) Farm Enterprise 35 0 3 63 0 46 62 ( 34 Primary Occupation Agricultural wage income 2 2 2 5 28 11 5 13 9 Nonagricultural wage income 31 63 60 9 36 16 10 51 29 Nonagricultural self-employment income 17 30 29 9 29 14 9 30 18 Secondary Occupations 12 4 5 12 6 11 12 5 9 Property Income 4 1 1 2 1 2 2 1 1 TOTAL 100 100 100 100 100 100 100 100 100 1/ A farm household is one with an agricultural enterprise. Sources: SUSENAS 1978 data tapes, Biro Pusat Statistik, Jakarta. Table 2.3 shows the total number of hours worked by all household members on different income-earning activities. Farm households are seen to work longer hours overall than nonfarm households, while rural households put in fewer hours altogether than urban households. The table also gives the income earned per hour worked for the different sources of income, from which it can be seen that agricultural wage work gives the lowest income per hour, thus highlighting the contribution of land in agricultural income. Ownership of capital is less crucial in the nonagricultural sector where wage income per hour is higher than self-employment income per hour for all categories of households except for nonfarm urban households where the two are equal. Secondary occupations show the highest income per hour in all household categories. Finally, Table 2.4 gives the proportions of the working population with different sources of income and employment status including unpaid family workers. It can be seen that for the 27% of all households which are classified as rural nonfarm, close to half of their working members (47%) work as farm laborers on the farms of others. For all farm households, 32% of the working members operate the family farm while another 25% work as unpaid family workers on the farm. Table 2.3: HOURS WORKED FOR 11011SE1OLD MEMBERS EARNING INCOMES FROM DIFFERENT SOURCES, BY 11OUSE'OLD TYPE ANI) AREA OF RESIDENCE, INDONESIA, 1978 URBAN RURAL INDONESIA Source of Income Farm 1/ Nonfarm TotaL Farm 1/ Nonfarm Total Farm 1/ Nonfarm Total Monthly Hours Worked per Household Farm Enterprise 128 0 15 182 0 123 180 0 105 Primary Occupation Agricultural wage income 15 10 11 35 112 60 34 76 52 Nonagricultural wage income 95 224 210 25 76 41 27 128 69 Nonagricultural self- employment income 90 107 105 40 73 51 42 85 60 Secondary Occupations 34 5 8 30 8 23 30 7 20 TOTAL 362 346 349 312 269 298 313 296 306 Z of Total Hours Worked Farm Enterprise 35 0 4 58 0 41 57 0 34 Primary Occupation Agricultural wage income 4 3 3 11 42 20 11 26 17 Nonagricultural wage income 26 65 60 8 28 14 9 43 23 Nonagricultural self- employment income 25 31 30 13 27 17 13 29 20 Secondary Occupations 9 1 2 10 3 8 10 2 6 TOTAL 100 100 100 100 100 100 100 1(0 100( Income per Hour (Rupiah) Farm Enterprise 100 0 98 83 0 83 83 0 83 Primary Occupation Agricultural wage income 43 69 63 34 46 41 34 47 42 Nonagricultural wage income 118 124 123 85 86 87 90 109 1(6 Nonagricultural self- employment income 68 124 119 54 72 62 54 95 78 Secondary Occupations 134 327 247 97 138 101 99 185 114 'A farm household Is one with an agricultural enterprise. Table 2.4: PROPORTIONS OF WORKING POPULATION WIT11 INCOMES FROM DIFFERENT SOURCES, BY TYPE OF HOUSEIIOLD AND AREA OF RESIDENCE, INDONESIA, 1978 URBAN RURAL _ INDONESIA Source of Income Farm 1/ Nonfarm Total Farm 1/ Nonfarm Total Farm 1/ Nonfarm Total X of Working Population With This Income Source Farm Enterprise Head of enterprise 24 0 3 32 0 24 32 0 21 Unpaid family worker 11 0 2 26 0 19 25 0 16 Primary Occupation Agriculture: Wage income 6 4 4 12 47 22 12 32 19 Nonagriculture: Wage income 24 65 59 7 26 12 7 40 19 Self-employment income 14 27 25 10 23 14 11 24 16 Unpaid family worker 4 5 5 1 3 2 1 4 2 Secondary Occupations 17 4 6 17 10 15 17 8 14 1/ A farm household is one with an agricultural enterprise. Source: Data tapes of SUSENAS 1978 (May Round), Btro Pusat Statistik, Jakarta. -9- III. Household Enterprises and Labor Force Participation A large number of Indonesian households operate household enterprises, nonagricultural as well as agricultural. Table 3.1 shows that 59% of all households have some kind of enterprise but that most of these are farm enterprises. 1/ Only a small number of households have two or more enterprises. In urban areas 16% of households have enterprises, with 10% being farm households and the remaining 6% operating nonagricultural enterprises. In constrast, only one-third of rural households are without any enterprises; most of the rest operate farm enterprises. Altogether, farm enterprises account for 62% and 95% of all enterprises in urban and rural areas respectively. Even though nonagricultural enterprises account for only 7% of all enterprises, there are over one million of them so that it would be of some interest to know what kind of activities they carry out. Table 3.2 shows that, of all nonagricultural enterprises in urban areas, 73% are classified as "wholesale, restaurant and hotel", that is, most of them are probably small restaurants and food vendors businesses. Another 10% are engaged in manufacturing activities. In rural areas, 52% of nonagricultural enterprises involve restaurants and food vendors and over one-third are in manufacturing, with 9% in community and social and personal services and 3% in construction. 1/ A household enterprise consists of either a businessman in the agricultural sector, whether or not he has employees, or a businessman in other sectors if he has employees. Table 3.1: NUMBER AND PERCENTAGE OF HOUSEHOLDS BY NUMBER AND TYPE OF HOUSEHOLD ENTERPRISES, BY AREA OF RESIDENCE, INDONESIA, 1978 URBAN RURAL TOTAL No. of HH's No. of HH's % No. of HH's % Number and Types of Household Enterprises None 3,912,766 84 7,984,878 33 11,897,644 41 One: Agricultural 447,780 10 15,363,003 63 15,810,783 54 Nonagricultural 272,968 6 446,591 2 719,559 3 Two: Agricultural + Nonagricultural 19,499 0 435,134 2 454,633 2 2 Nonagricultural 6,908 0 8,361 0 15,269 0 Three: Agricultural + 2 Nonagricultural 159 0 0 0 159 0 TOTAL 4,660,080 100 24,237,967 100 28,898,047 100 Source: Data tapes of SUSENAS 1978 (May Round), Biro Pusat Statistik, Jakarta. Table 3.2: NUMBEK AND DISTRIBUTION OF HOUSEIIOLD ENTERPRISES BY SECTOR ANI) AREA OF RESIDENCE, INDONESIA, 1978 URBAN RURAL INDONESIA Sector % of X of % of Number % Nonagr1cultural Nuimber X Nonagricultural Number X Nonagricuiltuiral Agriculture 496,340 62 16,071,277 95 16,567,617 93 Nonagriculture 306,601 38 100 898,546 5 100 1,205,048 7 100 Mining and Quarrying 0 0 0 0 0 0 0 0 (J Manufacturing 31,638 4 10 313,631 2 35 345,269 2 29 Electricity, Gas, and Water 0 0 0 0 0 0 0 1 Construction 4,308 1 1 27,391 0 3 31,699 0 3 Wholesale, Restaurant and Hotel 224,536 28 73 471,028 3 52 695,564 4 58 Transportation and Communication 10,721 1 4 5,023 0 1 15,744 0 1 Real Estate and Business Services 733 0 0 0 0 0 733 0 ( Community and Social and Personal Services 34,665 4 11 81,374 0 9 116,039 1 1N TOTAL 802,941 100 16,969,724 100 11,772,665 100 Source: Data tapes of SUSENAS 1978 (May Round), Biro Pusat Statistik, Jakarta. -12 - Table 3.3 gives the regression equation for estimating the labor force participation for all individuals ages 10 and over. Most of the explanatory variables are standard ones: age and age-squared; and dummy variables for sex, marital status, level of educational attainment and location of residence. In addition, we add a dummy variable to indicate when an individual's household operates a household enterprise. Over half, or 56.6%, of all individuals ages 10 and over work. The participation rate increases with age, but at a decreasing rate. Controlling for other characteristics, the rate is considerably lower for women than for men, the regression coefficient for the dummy variable for women being -.32 and statistically significant. Being married does not affect labor force participation once other factors are controlled for. The relationship between labor force participation and the level of educational attainment is not monotonic. The participation rate for those with a primary school education is lower than those with no schooling at all and declines further for those with junior secondary education. Senior secondary school graduates have a higher participation rate than those without any schooling and university graduates participate at a rate 18 percentage points higher than those with no schooling. Rural participation rates are 10 percentage points higher than urban rates. The coefficient on the dummy variable indicating the existence of a household enterprise is positive and statistically significant, showing that after controlling for individuals' personal characteristics and urban/rural location of residence, the participation rate of individuals in households with enterprises is 9 percentage points higher than those in households without enterprises. It would therefore appear that the relative convenience of working in the household enterprise, in terms of distance and flexibility in terms of working hours and so on, serves as an inducement to higher labor force participation. - 13 - Table 3.3: REGRESSION OF LABOR FORCE PARTICIPATION FOR ALL INDIVIDUALS AGES 10 AND OVER, INDONESIA, 1978 Mean of Variable Regression Coefficient Dependent Variable .566 Constant -.2016 Individual's Characteristics Age (years) 30.963 .0475 (56.57) Age (years ) 1229.342 -.0005 (52.74) Sex: Female .521 -.3173 (56.70) Marital Status: Married .543 .0007 (.09) Educational Attainment: Primary .625 -.0222 (3.08) Junior secondary .055 -.1100 (8.20) Senior secondary .029 .0222 (1.25) Academy/University .003 .1788 (3.47) Household Characteristics Having household enterprise .554 .0937 (15.82) Location Rural .809 .1033 (13.36) R2 = .3173 N = 22937 Note: t-statistics are given in parentheses. Source: Data tapes of SUSENAS 1978 (May Round), Biro Pusat Statistik, Jakarta. - 14 - IV. Household Members' Contributions to Household Income The labor force participation rate for household members varies depending on their personal characteristics. The number of hours worked and the incomes earned by individuals who work also vary across individuals. In this section we wish to see the relative contributions to the households of different groups of household members in terms of the hours of work they put in and the incomes that they earn. Household members are classified into a number of age-sex categories, with an emphasis on the younger age groups. As before, households are grouped according to whether or not they have an agricultural enterprise and by urban/rural location. Tale 4.1 gives the contributions of different age-sex groups to the total number of hours worked and household total earned income (i.e. agricultural enterprise, wage and self-employment incomes, excluding property income). 1/ For reference, we also include the shares of these age-sex groups in the total population ages 10 and over. To consider first males and females combined, we see that those in the two oldest age groups defined here, that is the 19-25 and 26 and over groups, put in more than their shares of hours worked, especially the latter group which makes up 54% of the population and 67% of hours worked. However, only the oldest age group contributes greater than their share in terms of income earned, 77% over all. Younger household members ages 10 to 18 gradually increase their contribution to both hours worked and household income as they get older. Moreover, their contributions are relatively greater in farm compared with nonfarm households in both urban and rural areas. 1/ Farm income has been distributed to the household members who work on the farm. In addition, the sample contains a number of unpaid family workers to whom income has been redistributed. See Annex I for details. Table 4.1: wauf0rr1u 7i IKXUD WrAL MUM DOM ANia MIUrArL iuXs W1an Rr DRFMPr A-SEX GfIS, W D10IMl:D IYPE ANn AM (F RFeSCIUE, IMXWNP1A, 1978 RvlIat1on Ag_ 10 oud ODer lbtad Iburs W1rld Ibtukld lbtal FArno Ir lnmn Urban Irir Urban rral ueoa Ijral Ap-9Sm GCtmu Ftm NMnfann ThtAl FPm N,nfarm Ttal ranm NWnFam lbtal Fram Nnfamn '8tal Fram Nbnfama lbtal Fann ImnfaM Ibtal Milea 48.4 48.7 4n.6 48.6 46.8 47.8 64.7 68.1 67.6 65.2 61.1 63.9 78.1 82.7 82.4 76.8 76.0 76.5 10-12 4.7 5.1 5.0 5.3 5.6 5.4 0.3 0.1 0.1 1.0 0.6 0.8 0.1 0.0 0.0 0.4 0.4 0.4 13-15 6.3 4.8 4.9 5.0 5.0 5.0 3.9 1.0 1.3 3.3 2.3 3.0 1.1 0.3 0.4 1.7 1.3 1.6 16-18 4.1 5.2 5.1 4.5 3.3 4.1 4.3 2.9 3.0 5.5 2.5 4.6 1.9 1.4 1.5 3.1 2.1 2.8 19-25 7.a 9.7 9.5 7.4 6.9 7.3 14.18 15.1 15.0 12.4 11.4 12.1 11.0 10.5 10.6 11.4 9.5 10.11 26 + 25.5 21.9 24.1 2f.l4 25.0 20.0 41.4 41.0 401.2 43.0 44.3 43.4 64.0 70.5 69.9 60.2 62.7 60.9 onalea 51.7 51.3 51.4 51.5 54.1 52.2 35.2 31.9 32.3 34.9 38.8 36.2 21.9 17.2 17.5 23.1 24.1 23.4 10-12 4.3 4.6 4.5 5.8 4.5 5.5 0.4 0.3 0.3 0.9 0.4 0.8 0.0 0.0 0.0 0.3 0.3 0.3 13-15 6.0 5.4 5.5 4.9 4.1 4.6 2.4 2.5 2.5 2.2 1.6 2.0 0.3 0.5 0.4 1.4 0.7 1.2 16-18 4.5 6.0 5.9 4.4 4.0 4.3 1.2 4.3 4.0 3.2 2.5 3.0 0.3 1.0 0.9 2.0 0.9 1.7 19-25 10.6 11.4 11.3 9.2 11.4 9.8 8.5 7.5 7.6 6.4 8.0 6.9 2.9 3.4 3.4 4.2 4.4 4.3 Ul 26 4 2Y.3 23.9 24.2 27.2 30.1 211.0 22.7 17.3 17.9 22.2 26.3 23.5 18.4 12.3 12.8 15.2 17.8 15.9 1 Mile + FIalas 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 10-12 9.0 9.7 9.5 11.1 10.1 10.9 0.7 0.4 0.4 1.9 1.0 1.6 0.1 0.0 0.0 0.7 0.7 0.7 13-15 12.3 10.2 10.4 9.9 9.1 9.6 6.3 3.5 3.8 5.5 3.9 5.0 1.4 0.8 0.8 3.1 2.0 2.8 16-18 8.6 11.2 11.0 8.9 7.3 8.4 5.5 7.2 7.0 8.7 5.0 7.6 2.2 2.4 2.4 5.1 3.0 4.5 19-25 18.4 21.1 20.8 16.6 18.3 17.1 23.3 22.6 22.6 18.8 19.4 19.0 13.9 13.9 14.0 15.6 13.9 15.1 26 + 51.8 47.8 48.3 53.6 55.1 54.0 64.1 66.3 66.1 65.2 70.6 66.9 82.4 82.8 82.7 75.4 80.5 76.8 Shursn: DtA tnlan of :rl=RO 1978 (My ruxal), Rim Pu:vt 4StlatCIk, .7alortA. - 16 - Female household members make up 52% of the total population ages 10 and over; they contribute 36% of total hours worked and 23% of total household income. Women of all ages contribute less than their share in the population to hours worked and income, although the relative contributions rise with age. Men's relative contributions also increase with age; the age group 16-18 contributes more than its expected share of hours worked and for those of ages 19 and over the contributions to both hours worked and income exceed their shares in the population. Women and young people contribute relatively less to household income both because they work fewer hours and because they earn less for each hour that they work. Table 4.2 gives the contribution to hours worked for each age-sex group relative to the average for household members in each household category. It can be seen that men on average earn 20% more per hour than average, while women earn 35% less. Young people (25 and under) in both farm and nonfarm households earn relatively higher incomes in rural compared with urban areas. All age-sex groups earn less per hour worked than average except for nen over 25 who on average earn over 40% more than average. Table 4.2: INDEX OF CONTRIBUTION TO HOUSEHOLI) TOTAL EARNED INCOME RELATIVE TO TOTAL HOURS WORKED FOR DIFFERENT AGE-SEX GROUPS, BY HOUSEHOLD TYPE AND AREA OF RESIDENCE, INDONESIA, 1978 URBAN RURAL Age-Sex Group Farm 1/ Nonfarm Total Farm 1/ Nonfarm Total Male: 121 121 122 118 124 120 10-12 33 0 0 40 67 50 13-15 28 30 31 52 57 53 16-18 44 48 50 56 84 61 19-25 74 70 71 92 83 89 26 + 155 144 145 140 142 140 Female: 62 54 54 66 62 65 10-12 0 0 0 33 75 38 13-15 13 20 16 64 44 60 16-18 25 23 23 63 36 57 19-25 34 45 45 66 55 62 26 + 81 71 72 68 68 68 Male + Female 100 100 100 100 100 100 10-12 14 0 0 37 70 44 13-15 22 23 21 56 51 56 16-18 40 33 34 59 60 59 19-25 60 62 62 83 72 79 26 + 129 125 125 116 114 115 1/ A farm household is one with an agricultural enterprise. Source: Data tapes of SUSENAS 1978 (May Round), Biro Pusat Statistik, Jakarta. - 18 - V. Supplementary Workers and Secondary Jobs In this section our interest is in the labor force participation of household members and specifically how individuals may respond to economic pressure in their decision of whether or not to participate. Thus we look at the role of supplementary workers and secondary jobs for household members. We first of all postulate that each household in general has a primary worker; this would usually be the male head of household. He would generally work irrespective of whether and how many other household members work. Thus we would expect other household members' decisions to be based on how adequately the income earned by the primary worker provides for the household, where the participation of, and income earned by, the primary worker are taken as given. In Table 5.1 we look at the labor force participation rates for the working-age population, that is those ages 10 and over, excluding primary workers. The rates are given for urban and rural households separately and for three different levels of adequacy of the primary worker's income, defined as the primary worker's income per household member. That is, we test the hypothesis that the labor force participation of household members other than the primary worker is influenced by the level of per capita income for the household had the primary worker been the sole earner. We see that in general labor force participation is lower in households in which the primary workers are able to provide incomes more adequately. For Indonesia as a whole, the rate is 46% in households where the primary workers' incomes are least adequate, compared with 29% for those with the highest level of adequacy. For each level of adequacy, the rate is substantially higher in rural households. - 19 - Table 5.1: LABOR FORCE PARTICIPATION OF SUPPLEMENTARY WORKERS AND PROPORTION OF PRIMARY WORKER'S INCOME IN HOIJSEHOLD TOTAL EARNED INCOME BY ADEQUACY OF PRIMARY WORKER'S INCOME, INDONESIA, 1978 URBAN RURAL INDONESIA Labor Force Participation Rate of All Individuals Ages 10 and Over Other than the Primary Worker (%) Adequacy of Primary Worker's Income 1/ Lower 40% (< Rp 1500) 23 48 46 Middle 30% ( Rp 1500-3700) 30 44 41 Upper 30% (> 3700) 23 32 29 TOTAL 25 44 40 % Primary Worker's Income in Household Total Earned Income Adequacy of Primary Worker's Income 1/ Lower 40% (< Rp 1500) 43 35 35 Middle 30% ( Rp 1500-3700) 60 57 58 Upper 30% (> 3700) 77 71 73 TOTAL 73 59 63 1/ Measured by primary worker's income per household member. Source: Data tapes of SUSENAS 1978 (May Round), Biro Pusat Statistik, Jakarta. - 20 - We also expect the primary worker's income to constitute a larger share of household total income where his income is already more adequate and hence less likely to induce greater participation rates on the part of other household members. This is indeed the case, as shown in Table 5.1. Whereas the primary worker contributes on average 35% of household income for the household group with lowest adequacy, that is, other household members contribute nearly twice as much again, in the case of the group in which the primary worker provides most adequately, his share in the total is close to three-quarters. The primary worker's contribution is smaller in rural areas for any given level of adequacy. In the same way that the adequacy of the primary worker's income can influence the level of participation of other household members, the adequacy of the sum of all incomes from primary jobs, including that of the primary worker, can be expected to influence whether or not household members take up secondary jobs. This hypothesis is tested in Table 5.2. We see that the proportion of working household members, including the primary worker, having secondary jobs is indeed related to the level of adequacy of total income from all primary jobs, where this is measured by total income from all primary jobs per household member. For Indonesia as a whole, 11% of the working population have secondary jobs in households where total primary income per capita is over Rp 5,000, compared with 22% for households in which it is under Rp 2,400. For a given level of income adequacy, a larger proportion of secondary jobs is observed in rural compared with urban areas. Total income from primary jobs also constitutes a larger proportion of total income where it is more adequate. Whereas the 22% of working members with secondary jobs contribute 42% of total income for households in which per capita income from primary jobs is less than Rp 2,400, the 11% of working - 21 - Table 5.2: LABOR FORCE PARTICIPATION IN SECONDARY JOBS AND PROPORTION OF TOTAL INCOME FROM PRIMARY JOBS IN HOUSEHOLD TOTAL EARNED INCOME, BY ADEQUACY OF TOTAL INCOME FROM PRIMARY JOBS, INDONESIA, 1978 URBAN RURAL INDONESIA % of Working Population Having Secondary Jobs Adequacy of Total Income from Primary Jobs 1/ Lower 40% (< Rp 2400) 15 22 22 Middle 30% ( Rp 2400-5000) 8 15 14 Upper 30% (> Rp 5000) 5 13 11 % Total Income from Primary Jobs inlHousehold Total Earned Income Adequacy of Total Income from Primary Jobs 1/ Lower 40% (< Rp 2400) 68 57 58 Middle 30% ( Rp 2400-5000) 96 87 88 Upper 30% (> Rp 5000) 95 93 94 1/ Measured by total income from all primary jobs per household member. Source: Data tapes of SUSENAS 1978 (May Round), Biro Pusat Statistik, Jakarta. - 22 - members with secondary jobs contribute only 6% for those in which the level is greater than Rp 5,000. Finally, for farm households we test the hypothesis that participation in off-farm work, defined as farm work on someone else's farm and all nonagricultural work, for household members not already working on the household farm is influenced by the adequacy of the income from the farm itself. Table 5.3 gives the regression results of a standard labor force participation equation in which farm enterprise income per capita is included as a variable. It can be seen that, after controlling for personal characteristics of individuals, participation of household members in off-farm work is negatively related to the level of farm income per capita. For every Rp 1,000 increase in farm income per capita, the probability of a household member being engaged in off-farm activities decreases by one percentage point. Thus we see that in general household members attempt to compensate for low incomes by greater participation in income-earning activities, either with supplementary workers or with secondary jobs for those already working. In farm households, members of households with lower farm incomes are more likely to seek off-farm income-earning opportunities. VI. Conclusion This paper examines the sources of income for Indonesian households in conjunction with the labor force participation of their members. It notes the great reliance of households on nonfarm sources of income, even in rural areas. When households are categorized into four major groups according to whether or not they operate a farm and by urban/rural location, the group which is worst off consists of nonfarm households in rural areas. - 23 - Table 5.3: REGRESSION OF PARTICIPATION IN OFF-FARM WORK 1/ FOR ALL INDIVIDUALS IN FARM HOUSEHOLDS AGES 10 AND OVER WHO ARE NOT WORKING ON THE HOUSEHOLD FARM, INDONESIA, 1978 Mean of Variable Regression Coefficient Dependent Variable .308 Constant -0.1760 Individual's Characteristics Age (years) 27.649 .0388 (24.62) Age2 (years2) 1048.151 -.0004 (23.73) Sex: Female .660 -.2718 (22.65) Marital Status: Married .449 .0363 (2.48) Educational Attainment Primary .665 .0238 (1.56) Junior Secondary .036 -.0895 (2.84) Senior Secondary .011 .1272 (2.43) Academy/University .001 .4668 (1.80) Household Characteristics Farm enterprise income 25.357 -.0010 (9.49) per capita (in Rp 100) Location Rural .956 .0453 (1.72) R2 = .2248 N = 5784 1/ Farm work on someone else's farm and all nonfarm work. Note: t-statistics are given in parentheses. Source: Data tapes of SUSENAS 1978 (May Round), Biro Pusat Statistik, Jakarta. - 24 - Household members are more likely to participate in the labor force if they belong to households which operate household enterprises. They are also induced to participate to a greater degree in cases where the income provided by the household's primary worker is less adequate for the household needs and are more likely to take up secondary jobs when the total income from all the primary jobs is less adequate. Farm household members are more likely to engage in nonfarm activities when the farm enterprise income is less adequate for the requirements of the household. In order to raise the income levels of households, government policy should therefore be directed to various ways of raising farm productivity and, in addition, to encouraging nonfarm household enterprises in both urban and rural areas. Table A.J: amosi;r1IN OF I IJSFO11) 'rffAI FARNt2) INCtl 8EWrW AMt) AF1lX AIJIISM S, BY TYV'E FW H tlYThN" AN) ARFA OF RFSIIIFNdK, INXNF.SIA, 1978 LtMN _ _R_____ _____ Farm Nonfamn Fam Nf Source of Inoos by Sector ndistributed llistributed I Dtstrthuted II Llrkistributed Distributed I Distributed I lir1distrLbuted )Astributed I DtstrthI It [listributed Distrih,ted I Mstribdred 11 and Status of Oaiopation Farm enterprise iorue 12,765 3,956 3,956 0 O 0 15,080 1,711 1,711 0 0 0 Prisry Job AgricLltLtre Eployee 640 640 640 694 694 694 1,IHIt 1,181 1,181 5,133 5,133 5,1i3l Fi4loyer withtut emplayes 0 6,048 6,048 0 0 0 0 5,316 5,286 0 0 0 Enployer with eWloyees 0 1,133 1,282 0 f 0 0 3,301 3,752 0 O O Iaid fanily worker 0 1,627 1,480 0 0 0 0 4,751 4,311 0 0 Ncneriailture Ebloyee 11,235 11,235 11,235 27,710 27,710 27,710 2,134 2,134 2,134 6,573 6,573 h,573 Fployer without eaplcees 3,538 3,538 3,538 10,627 10,627 10,627 1,782 1,782 1,782 3,924 3,924 3,924 Eaplyjer with ealayees 2,623 1,150 1,505 2,661 1,279 1,609 360 189 242 1,325 727 979 lkqaid fanily worker 0 1,473 1,118 0 1,3f1 1,052 0 171 118 0 598 )47 Secordary Jobt 4,559 4,559 4,559 1,636 1,636 1,636 2,918 2,918 2,918 1,105 1,105 1,115 n Total Earned Irsx 35,360 35,359 35,361 43,328 43,327 43,328 23,455 23,455 23,455 18,060 18,tW"I1 l8,(I1 Source: Data tapes of SIJSENAS 1978 (Hay roAnd), Biro Pusat Statlstik, Jakarta. Table A.2: COMPARISON OF INCOMF PER HOUR WORKED FOR THE Two METHODS OF DISTRIBIITION, BY TYPE OF NiOIJSEHOLD AND AREA OF RESIDENCE, INIONESIA, 1978 (RnpI ahl/hour) URBAN _ ____________ RURAL _ Farm Nonfarm Farm Nonfarm Distributed I Distrtbuted II Distributed I Dlistrtbuted It Distributed I Distribhnt- I Di strtbuted I 1i4stributed I[ Primary Job Agriculture Employee 43 43 67 67 34 34 46 46 Employer without employees 106 106 0 0 99 99 0 ' Employer with employees 43 48 ( 0 65 74 0 () Unpaid famdly workers 37 34 0 0 61 56 0 0 Nonagriculture Employee 119 119 124 124 86 86 87 87 Employer without employees 95 95 138 138 58 58 70 70 Employer with employees 74 96 98 123 56 72 78 106 Unpaid family workers 40 30 85 65 28 19 76 44 Secondary Jobs 134 134 346 346 98 98 134 134 Source: Data tapes of SUSENAS 1978 (May round), Biro Pusat Statistik, Jakarta.