Estimating employment elasticity for the Indonesian economy

One indicator widely used for analysing the operation of the labour market is employment elasticity. The latter measures the percentage changes in employment induced by changes in GDP.

The estimates of employment elasticity can be derived readily from province-level employment/GDP data for the 1997-1996 period using both econometric and noneconometric methods. The estimates vary from a low of 0.49 (non-econometric method) to a high of 0.66 (OLS method).
Given the range of elasticity estimates, the growth thresholds at which employment creation reaches the point of absorbing new entrants to the labour force (approximately 2 million jobs annually) varies between 3.47 per cent to 4.68 per cent.