Tom Pepinsky

Category: Economics

  • Chinese Overseas Workers in Indonesia

    This week’s issue of Tempo features several stories on Chinese laborers in Indonesia. The cover is as evocative as it gets:

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    “Welcome, Chinese Laborers,” the title reads.

    Under the headline “A Flood of Workers from the Panda Country”* [= Banjir Pekerja Dari Negeri Panda], we find a description of some of these workers. I am certainly not alone in finding the headline to be unnecessarily inflammatory and provocative. A flood? Hardly. But I do think that the details about how labor migration from China to Indonesia works are very interesting. Given that there are strict regulations on foreign labor in Indonesia to prohibit labor market competition, and given that most of the laborers described in that article are low-skilled manual laborers and machinists, how are these workers getting the permits they need?

    Well, one way is to take advantage of bureaucratic “weaknesses” [= kelemahan].

    Seorang kuli asing bisa mengantongi izin karena memanfaatkan “kelemahan” pejabat di bagian pelayanan perizinan.

    Pejabat bagian pelayanan tidak ketat menerapkan syarat: satu pekerja asing harus didampingi satu tenaga lokal. Dalam prosedur, dokumen biodata pekerja lokal harus dilampirkan bersamaan dengan biodata si tenaga asing.

    Seorang calo bercerita, biodata tenaga lokal pendamping hanya formalitas. Ia selalu meminta “klien”-nya menyerahkan biodata karyawan yang disebut sebagai tenaga pendamping. Ia meyakinkan, perusahaan tidak perlu khawatir karena pejabat Kementerian Ketenagakerjaan jarang mengecek keabsahannya. “Kalau ada pengecekan, ya, pura-pura sebagai tenaga pendamping,” katanya.

    A foreign laborer** can get a permit because of the “weakness” of the officials in the permit services division.

    Officials there do not closely follow regulations: a foreign worker must be paired with a local worker. Following the procedures, the biodata of the local worker has to be submitted together with the biodata of the foreign worker.

    But a fixer explained that the biodata of the local counterpart is just a formality. He always instructs his “clients” to submit the biodata of an employee who is deemed the counterpart. He assures them that the company does not need to worry because the officials of the Ministry of Manpower rarely investigate the validity of the data. “If they check, well, they pretend to be the counterpart,” he said.

    So, just fill out dummy forms. Or you can bribe an official.

    Salah satu calo memungut Rp 8,5 juta untuk mengurus izin satu orang tenaga kerja asing. Ia menjamin, dengan tarif itu, perusahaan sponsor memperoleh izin mempekerjakan tenaga asing (IMTA) dan kartu izin tinggal terbatas (kitas).

    One fixer estimated a price of approximatedly US$ 640 to arrange a permit for one foreign worker. He maintained that at this price, the sponsoring company would receive both a work permit (IMTA) and a limited-stay residency permit (KITAS).

    OK, so those are the details. What is the motivation, though? Given that Indonesia is a labor-rich country itself, with a good deal of labor market slack, why would a Chinese firm operating in Indonesia need to import low-skilled laborers from China? Well, according to one Indonesian manager, “etos kerjanya luar biasa” [= they have an extraordinary work ethic]. The other argument we find in the Tempo piece is that the machinery uses manuals that are printed in Mandarin.

    I wonder about that. There has been a lot of press coverage of Chinese workers in Africa, and lately also about Chinese workers in Latin America (see this recent story about Ecuador). I wonder if the recent rise in Chinese labor exports to Indonesia is just following the same pattern, or if it’s something different.

    NOTES

    * Describing countries by with reference to some stereotype is common in Indonesian. So “Panda Country” = China, Negeri Paman Sam [= Uncle Sam Country] is the U.S., Negeri Matahari Terbit [= Country of the Rising Sun] is Japan, Negeri Kanguru [= Kangaroo Country] is Australia, Negeri Beruang Merah [= Country of the Red Bear] is Russia, Negeri Matador is Spain. Some of these terms are more offensive than others.

    ** I love the use of the word kuli here. It shares the same root as—indeed, it is the same word as—coolie. The etymology of coolie is interesting in and of itself.

  • Ad-hoc-ery in Macroeconomics

    Ray Fair recently posted a very interesting commentary on the macroeconomics dust-up between Lucas/Sargent and Solow as described by Paul Romer and commented upon by many others. His position is interesting: he represents the Old Guard of macroeconomics who works with what are variously called Structural Econometric Models or Cowles Commission models.

    I am one of the few academics who has continued to work with CC models. They were rejected for basically three reasons: they do not assume rational expectations (RE), they are not identified, and the theory behind them is ad hoc. This sounds serious, but I think it is in fact not.

    The whole post is worth reading, but I find it useful because it highlights (perhaps not purposefully) very different ways of conceiving of the relationship between theory and data. One might view the CC tradition as an attempt to start with data and then use theory to put structure on that data. The criticism, then, is that theories are ad hoc.

    The alternative in the RBC and DSGE traditions is to start with rigorous theory, often one built on a representative agent. The criticism of RBC is that the theories may be internally consistent, but they don’t describe reality very well without ad hoc additions. As a non-specialist, I interpret the disagreement between RBC and DSGE as lying primarily in what kinds of ad hoc additions are permissible. See Delong for a typically pointed description. Of course, I cannot rule out the claim that RBC and DSGE traditions differ because people working these traditions need models that support their policy preferences.

    Obviously this is simplifying mightily. But taking a look at a CC model, it is easy to see why a causal observer might miss the theory (e.g. this recent Fair paper). And looking at a RBC model (e.g. this McGrattan and Prescott paper), it obvious that theory comes first.

    This makes Milton Friedman’s comments on assumptions and predictions all the more interesting.

    …a theory cannot be tested by comparing its “assumptions” directly with “reality.” Indeed, there is no meaningful way in which this can be done. Complete “realism” is clearly unattainable, and the question whether a theory is realistic “enough” can be settled only by seeing whether it yields predictions that are good enough for the purpose in hand or that are better than predictions from alternative theories. Yet the belief that a theory can be tested by the realism of its assumptions independently of the accuracy of its predictions is widespread and the source of much of the perennial criticism of economic theory as unrealistic. Such criticism is largely irrelevant, and, in consequence, most attempts to reform economic theory that it has stimulated have been unsuccessful.

    Perhaps someone in Fair’s tradition would hold that the assumptions of a theory are just as likely to be identifying assumptions in a simultaneous equations model as they are to optimizing assumptions in a representative agent model.