PUBLICATIONS & REPORTS

Contents Introduction

This paper examines trends in employment, production, and relative labor productivity in foreign multinational corporations (MNCs) in Indonesian manufacturing and over the last quarter of the 20th century. On average, foreign MNCs accounted about one-seventh of employment and a little more than one-fourth of production over this period with relatively low shares observed in 1975 and 1985-1991, and relatively large shares observed after the mid-1990s. There were marked increases in employment and production in the mid- and late-1990s, which were concentrated in the machinery industries and heavily-foreign MNCs, and occurred despite large outflows of foreign direct investments from Indonesia in the late 1990s. Shares of foreign MNCs in production tended to be larger than corresponding shares of employment and correspondingly, value added per worker was higher, often much higher, in foreign MNCs than in local plants. After controlling for plant-wise variation in size and vintage, average labor productivity was significantly higher in foreign MNCs in about one-third of the industry-year combinations examined in 10 selected industries over 26 years. Statistically significant differences were most common in chemicals and electric and precision machinery, and least common in apparel, footwear, and transportation machinery. Significant differences were most common between majority-foreign MNCs and local plants, but differences in labor productivity were rarely significant among foreign ownership groups. Owing partially to examination of a much larger number of industry-year combinations, these results suggest that significant differences of labor productivity between foreign MNCs and local plants may have been less common than suggested by previous studies of Indonesian manufacturing.