DEMOGRAPHIC VARIABLES AND ITS SIGNIFICANCE FOR

BUSINESS ACTIVITIES

by
Tadjuddin Noer Effendi

Introduction
In a study business environment, demographic variables are important to
understand and to be consider by some one which concerned and involved in
business activities. One of the reasons is that almost all private and public sector has
the ultimate aim for producing and delivering some kind of good or service to people.
It would appear axiomatic, therefore, that necessary and fundamental preliminary of
efficient and affective production and delivery of good and services is a sound and
detailed knowledge of the population which being by business or government agency
(Hugo, 1991). Other reason is that knowledge of the population has a potentiality to
provide basic data and information that can be use for helping to strengthen business
activities and in magnetizing investors. In addition, a characteristic of population and
their change over time able to present general pictures of a potential market. For
example, a country having a big population with a high economic status that has
purchasing power could develop an extra-ordinary market expansion. While a
country having a big population but high proportion of population having a low
income as indicated by a high incidence of poverty, a lower level of education and
health may not be attractive to investor since have limitation for market expansion.
A big population characterized by unequal distribution also can hinder
development process and led to hinder the business activities. As we know that
about 60% of Indonesia population live in Java and the rest are spreading out in
other islands. To fulfill the need of big population, a state has to invest a lot of fund to
develop Java than other island. As a result, infrastructure and other public facilities
are more develop in Java than outer Java. The available of infrastructures have easy
access for investors to get facilities in developing their activities. Not surprisingly,
therefore, investors tend to be attracted to invest more in Java than outer Java.
Another reason for investors being more willing to invest in Java is that the abundant
of laborers are available in Java in comparison to outer Java.
Demographic variable such as age structures could determine the nature of
business activities. The high proportion of younger age structure can give a
potentiality to other investor to develop their business related to younger age
structures needed, such as school, social facilities etc. However, when fertility rates

1
decline and the proportion of adult population decrease led to the potential market
will change. For example, the change of population structures of Yogyakarta and
Central Java toward aging population as life of expectancy increase and decrease
number of adult population because or fertility decline subsequently have to force the
government implementing policy to close down or to merger many primary schools.
Several years after, the secondary schools are also finding difficulty to get new
pupils. This gives an illustration on how the change of population structure could
determine the public policy. In contrary, the state has to spend a lot of fund to build
new schools to serve young adult population need in the region where fertility rates
still high. In some cases in order to make available its population need, the state
have to provide more budget and grant. Moreover, more funds have to endow with
subsidize to the region that has high poverty incidence or low quality of population.
This perspective assumes that demographic aspect; especially population growth is
place an independent variable.
Other perspective assumes that demographic aspect could place as a
dependent variable. This means that business activities could be influenced
demographic variable. However, this could be occurring in a particular area or
country. For instance in Batam before business activities (industries) are
concentrated there, the number and the population growth was very low. Since
business activities are located there, the rate of population growth increased
significantly because abundant of migrants from other area migrated to Batam. In
1990, the number of population was about 106.667 and in 1990 increase to 434.299
and in 2005 increase close to 700.000. This means after industrial development, the
population growth of Batam a year in period 1990-2005 vary between 5-10%. Rapid
population growth is a result of in-migration as an attraction of the concentration of
business activities (industries) there. However, the bulk of migrants have created
new problems in Batam, such as crime, housing problem and environment
degradation. This in-migration also led to population structure (age) of Batam are
more productive and young potential people. This means that business activities can
be a magnet for people (labor) and lead to determine population aspect, especially
population growth and age structures.
From the previous discussion, it can be learned that demographic information
could help some one to make decision about type, equality, and quantity for their
business. Without those data and information’ the businessman may be find difficulty
in developing their activities. However, business activities can determine population
aspects as well. This gives ample reasons why businessman needs to study
demographic aspects. Accordingly, this articles discusses several basic demographic

2
data and information such a number, distribution and population density, population
structure (age, gender, education and employment) also their change and to evaluate
its implications on business.

NUMBERS, DISTRIBUTION AND POPULATION DENSITY

From the number of Indonesians population in 2005 (213.4 million), lies in
fourth place after RRC (1,264.5 million), India (1,002.1 million) and United State
(275.6 million). This large number of population has potential to attract investor
because there would be big market opportunities and an abundant amount of
potential labor. Of course, this would help the development process and stimulated
economic growth. Indonesia is one of destination countries for industrial expansion of
industrial countries (Japan, South Korea, Hongkong, United States). Investment in
several business activities has stimulated economic growth ranging between 5-8%
per year. This economic growth has led to open opportunities for other business
activities.
However, this investment has created many problems cause of the unequal of
quality and population distribution. Regions have large population such as Java may
can attract more investors while other regions such as Papua, Maluku less attractive
for them. Table 1 indicates the comparison of the population in Java and outside
Java in the year 2005. Table 1 indicates about 60% of total population of Indonesia of
live in Java, an island with its area covers only 7% of the total land area of the
country. Especially, Jakarta population density in 2005 is about 13,334 persons per
square kilometer (see Table 1). The high of population density indicates that Jakarta
is a place has been more attractive for doing business both trade and service.
However, it has been probably beyond the limit of carrying capacity of the
environment to support the need of its population. This limitation has an implication,
especially the cost in developing business, especially manufacturing, in Jakarta. It is
more costly in Jakarta comparison to out side of Jakarta. The reason is that in
developing business activities there is a need take into account the impact upon the
environment. Environment has to protect and to minimize the impact of business on
declining the quality environment of livelihood. This is important to consider in
maintaining the sustainable development. To achieve this, an effort to prevent the
degradation of environment we need to develop a plan and policy in controlling the
impact of business activities on quality of environment.

3
 Table 1
Number and Population Density by Island and Provinces in 2005
Island/provinces No.of population* % Pop.Density/sq km**

Sumatra 39,616,366 18.6 96

Nanggro Aceh Darussalam 4,213,821 2.0 78
North Sumatera 11,688,987 5.5 169
West Sumatera 4,555,810 2.1 106
Riau 5,563,406 2.6 52
Jambi 2,627,216 1.2 49
South Sumatera 6,767,645 3.0 73
Bengkulu 1,546,286 0.7 78
Lampung 7,104,572 3.2 201
Bangka Belitung 1,042,828 0.4 65
Kepulauan Riau 1,273,011 0.5 15
Java 128,025,689 60.0 3,260
DKI Jakarta 8,839,247 4.1 13,344
West java 38,886,975 18,2 1,126
Central Java 31,896,114 14.9 982
Yogyakarta 3,337,095 1.6 1,049
East Java 36,058,107 16.9 757
Banten 9,008,151 4.2 1,044
Bali 3,378,092 1.6 610
Nusa Tenggara 8,078,487 3.8
West Nusa Tenggara 4,169,695 1.9 208
East Nusa tenggara 4,243,182 1.9 90

Kalimantan 12,068,130 5.6 36

Weast Kalimantan 4,042,817 1.9 28
Central Kalimantan 1,913,026 0.9 12
South Kalimantan 3,271,413 1.5 75
East Kalimantan 2,840,874 .1.3 12

Sulawesi 15,749,821 7.4 82

Nort Sulawesi 2,121,017 0.9 139
Central Sulawesi 2,290,969 1.0 36
South Sulawesi 8,457,123 4,0 85
Southeast Sulawesi 1,960,697 0.9 51
Gorontalo 920,015 0.4 75

Maluku 1,249,212 0.6 31

North Maluku 881,867 0.4 29

Papua 2,439,838 1.1 7

Total 213,375,287 100 110

Source: *BPS, 2006, Population of Indonesia: Results of the Inter Census Population Survey 2005,
Serie S1, Jakarta, p.51
**BPS, 2007, Welfare Indicator 2006, Jakarta, p.112

4
 Java, Bali and Sumatra (so called Western Indonesia) have numbers of
population about 80.2% of Indonesia population. The rest about 19.8% of population
are distributing in Kalimantan, Sulawesi, and other islands (so called Eastern
Indonesia). Papua with its area cover 19.3% of the total inhabited only have 1.1% of
Indonesian population. This unequal population distribution has an important
implication on business development. The eastern of Indonesia is less attractive to
investor has led to the business activities not developed in a good way in the region
in comparison to Java and the rest of Western Indonesia. As a result, the
development process is faster in Java and the rest of western than eastern Indonesia
and this has an implication on inequality of welfare.
Demographic data presents in Table 1 could be use for an investment
planning as well. Java has a population density about 3,256 per square kilometers
could be use as an indicator that labor and market are available there. However, it
has limitation because land for industries has been limited so that land price is
relatively expensive in comparison to other areas where population density is low.
Another problem needs to be considering in areas having high population densities is
for preventing environmental degradation and pollution. This need more fund so that
the cost higher in comparison to the lower one. Labor cost may be lower but cost for
environmental management in order to support sustainable environment may be
more expensive. Those data can help the businessman to consider other alternatives
in decision for their investment.

POPULATION GROWTH
Population growth can be use as basic information for business investment.
They not only assisting in understanding the existing condition but it also can give us
information about trend and prospect of population in the future. Table 2 presents the
population growth rate by province of Indonesia in period 1980-1990, 1990-2000 and
2000-2005. Data in Table 2 indicate that there is a significant provincial variation in
the growth rate of population in period 1990-2005, ranging from 0.18% of West
Kalimantan and 4.15% of Riau Island. Those data also presents that in several
provinces the population growth in the past 10 years under 1%, such as in Jakarta,
Central Java, Yogyakarta and East Java. West Java located surrounding Jakarta, its
population growth about 2.7% above national growth rate. It seems that the district of
Jabotabek as a greater of Jakarta Metropolitan has been received more migrants and
peoples move out from Jakarta. This fact offered an indication that to develop
business (retail and service) may be better to invest outside Jakarta than in center of
Jakarta.

5
 Table 2
Population Growth by Provinces in period 1980-1990 and 1990-2000
Provinces Pop. Growth Pop. Growth Pop. Growth
1980-1990* 1990-2000* 2000-2005**

Aceh 2.72 1.67 0.52

North Sumatra 2.06 1.17 1.35
West Sumatra 1.62 0.57 1.45
Riau 4.31 3.79 3.22
Jambi 3.38 1.80 1.83
South Sumatra 3.09 2.15 1.78
Bengkulu 4.38 1.83 1.26
Lampung 2.65 1.05 1.12
Bangka Belitung - 0.97 3.00
Riau Island - - 4.15

Jakarta 2.41 0.16 1.17

West Java 2.57 2.17 1.75
Central Java 1.18 0.82 0.48
Yogyakarta 0.57 0.68 1.39
East Java 1.08 0.63 0.86
Banten - 3.21 2.20

Bali 1.18 1.22 1.44

West Nusa Tenggara 2.15 1.31 0.86

East Nusa Tenggara 1.79 1.92 2.19

West Kalimantan 2.68 1.53 0.18

Central Kalimantan 3.88 2.67 0.63
South Kalimantan 2.32 1.40 1.92
East Kalimantan 4.42 2.74 3.05

North Sulawesi 1.60 1.35 1.25

Central Sulawesi 2.87 1.97 1.07
South Sulawesi 1.42 1.14 0.96
Southeast Sulawesi 3.66 2.86 1.52

Maluku 2.78 0.65 1.42

Maluku Utara - 1.60 1.64

Irian Jaya Barat - - 3,.50

Papua 3.41 2.60 2.17

Indonesia 1.97 1.45 1.30

Source: *BPS, 2000, Population of Indonesia: The Result of census 2000, Jakarta, p.5
**BPS, 2007, Welfare Indicator 2006, Jakarta, p.111

6
 Province outside Java that had experiences in the decline of population growth is
Aceh, South Sulawesi, West Nusa Tenggara, West Kalimantan and Central
Kalimantan. There have been several aspects causing the decline of population
growth. The decline of population growth in Java provinces are partly causing of
fertility and influx of out-migration provinces the population growth in the past 10
years under 1%, such as in Jakarta, Central Java, Yogyakarta and East Java. West
Java located surrounding Jakarta, its population growth about 2.7% above national
growth rate. It seems that the district of the region. Whereas in Aceh the decreases
of population growth because natural disaster of Tsunami that killed thousand
peoples. West and Central Kalimantan, the decrease of population since the large
number of population moved to other areas cause of social disturbance (riot and
social conflict) that occurred since 1998. Fertility and mortality decline in several
provinces of Java indicates that there is social change toward small family in
response to family planning in the last 10 or 20 years ago. This would be effect on
the change of the age population structure, and as a consequent, the age structure
will change toward aging population. This will be discussing in the next section.
The decline of fertility rate in few provinces have caused by some factors namely:
• Social change, especially female education has increased and female has
initiated to enter the labor market of public sector in order to get wages. This
brings change in social (life) behavior of women, especially toward marriage.
They tend to delay marriage since they have to finish education for the sake
or their career development in work place. For the marriage women, planning
spacing of pregnancy is becoming a norm and the preference to have
children depend on the family economic condition. Two children have already
been a norm in young family.
• The awareness in birth control has spread out and has already been
accepted in the society.
• The first age marriage has increased significantly, especially for young
generations followed with young eligible couples.
• Small family norm are starting to be accepted and children are seen to be an
economic burden (not as fortune any more).
• Service towards the effort to controlling and delaying pregnancy has available
and easy to find.
The decline of mortality rate is cause from several factors namely:
• Prevention for infection and spread disease has improved significantly.
People are already free from spread disease.

7
 • Primary health care had developed and spread out so that people have easy
access to find the health service.
• Access to service for pregnancy, childbirth, and modern facilities for mother,
baby and child are already easy to find.
• Incidence for poverty tended to decline due to family health nutrition had been
improving and nutrition for child under five years has improved significantly as
well.
• Life expectancy for all age has increased.

Table 3 present some indicator of crude birth and death rate, number of medical
doctor per population, and life expectancy in 1971 and 2001. It shows that in all
indicators confirm that within three decades there are significant changes in
demographic aspects. Crude Birth Rates (CBR) and Crude Death Rates (CDR),
infant mortality has decreased significantly. Families have accepted having two
babies and may become a norm among young couples. The social changes toward
small family norm have an implication on market opportunity of goods and service.
To a certain degree in a normal condition, this changes lead to changes in family
consumption behavior causing the ability to save pert of family incomes. The
increase in purchasing power that could stimulate a market expansion for both goods
and services.

Table 3
Crude Birth and Death Rates Medical Doctor per population and
Expectancy of life in 1971 and 2005
Indicators 1970* 2005**
CBR (1/1000) 40 23
CDR (1/1000) 18 9
TFR 5.5 2.4

Medical doctor per population 26,820 5,150

Infant mortality (per 1000 104 32

Life Expectancy of female when

having a baby (year)
Female 49 57
Male 46 55
Source: *World Development Report, 1991, Investing in Health, Washington, p.59
**BPS, 2002, Welfare Indicators, Jakarta, 58

8
 Data in Table 2 also indicates that several provinces where the population
growth have increased above national rate. The provinces are Riau, Riau Island,
West Java, East Kalimantan, Central Kalimantan, and Papua. This fact can use as
an indicator that some business activities have attracted people migrate as an effort
looking for job to those provinces. For Central Kalimantan, Southeast Sulawesi, and
Papua beside in migration there is might be in association with the high fertility as
result of low quality of human resources cause of the high proportion of poverty (see
Table 4). By analyzing the population growth, we have an idea that there is open
opportunity in those provinces to do business, but the low level of living condition, low
family income as indicated by high poverty rate, the market might is quite limited
leading the prospect for business also limited.
Table 4
Life Expectancy, Infant Mortality Rate and Poverty Rate of selected Provinces in 2005
Provinces Life Expectancy* Infant Mortality Rate* Poverty Rate**
Jakarta 74.0 14 3.18
Central Java 71.0 25 21.11
Yogyakarta 74.0 14 19.14
East Java 70.0 29 20.08
West Java 69.0 33 12.10

West Nusa Tenggara 64.4 51 25.38

Maluku 67.7 38 32.13
Papua 68.4 35 38.69
East Kalimantan 71.6 23 11.57
Riau 70.1 28 13.12
West Sumatera 69.2 32 10.46
Source: *BPS, 2007, Welfare Indicators 2006, Jakarta, p.115
**BPS, 2007, Statistical Yearbook of Indonesia 2007, Jakarta, p. 585

In Riau and East Kalimantan population growth have increased caused by

influx of in-migration (young peoples) looking for job there. These areas have
experienced rapid development activities since there are many investors investing in
industries and other business activities. For example in Batam, Riau Island, bulk of
investment in 2000 the economic growth of Batam reached approximately 7.67% a
year. Batam City in the period of 1990-2000 has population growth approximately
15.63% and in 2000-2005 decreasing about 6-7%, but still 4 times of national
population growth. The industries activities have attract more labor migrated to this
region. Free zone policy has attracted investors to invest in varied of business
activities there. This has created a lot of job opportunities and business activities both
formal and informal to support the need of population. This has led to attract more
productive of young people looking for job there. It is not surprisingly; therefore, the
age structures of Batam tend to dominate by productive age groups. This of course

9
has implication on business activities opportunities in order to meet the young adult
needs. However, the massive in-migration has created a negative impact on Batam
environment. Subsequently, most of in migrants established their houses by cutting
the jungle illegally leading to the degradation of environment quality cause of spread
out squatter in reservoir zone. In period 1990- 2000 about 30,000-60,000 unit illegal
houses built in Batam area. One of the impacts is that the reduced the supply of
cleaning water for consumption. In addition, Batam labor market (industries) is not
able to absorb all of young in-migrants. Most of them have to wait for a while in
getting job as their aspiration. The other had find difficulty entering labor market
caused of them not able to meet the need of labor market. Faced with these
problems then forcing some of them to become unemployed. Crimes and social
problems come out and this phenomenon would affect the future business
atmosphere.

POPULATION STRUCTURE
Age
Population growth both caused by fertility or in and out migration would effect
the age of population structures. To understand the relationships between population
growth and the age of population structure we used data of age population structure
of Yogyakarta, Riau, Papua, and Indonesia that already applied in the previous
discussion. By comparing those data, we can examine the relationship between
population growth and population structure. Table 5 shows the populations structure
by age of the selected provinces in 2005.
Yogyakarta is one of the provinces that have low population growth indicated
that the proportion of age 0-14 years only 21.3% (while Indonesia 29%, Riau 32.8%
and Papua 35.5%) and the age of old population (>65) in Yogyakarta in about 9.2%
(Indonesia 4.7%, Riau 2.2%, and Papua 0.8%). These facts indicate that the age
structure of Yogyakarta population tend to change towards old population. This
change has an implication on nature of business. The young population would have
deferent preferences over old population. Another implication from the decline of
population growth caused by fertility decline is that the school age of primary school
has decline significantly in the recent years. Yogyakarta have experienced that few
primary school had to regrouping (merger) caused of number student for grade 1
reduced significantly. Faced with these problems, the state has applied a policy to
close down the primary school that is lack of new pupils (grade 1).

10
 Table 5
Population Structure by Age of Selected Provinces in 2005
Age Structure Indonesia (%) Yogyakarta (%) Riau (%) Papua (%)
0-14 29.0 21.3 32.8 35.5
15-64 66.3 69.5 65.0 63.7
>65 4.7 9.2 2.2 0.8

% 100 100 100 100

N 213,375,287 3,337,095 4,563,406 2,439,834
Dependency Ratio
58 44 53 57
Source: BPS, 2006, Population of Indonesia: Results of the Intercensal Population Survey 2005,
Serie S1, Jakarta, p.51

Riau and Papua have experience of high population growth partly caused by
in-migration and fertility, which has a different effect on population structure in
comparison to Yogyakarta. There is tendency that both provinces, the age structure
tend to have high proportion of population in age 0-15. This has different implication
in comparison to Yogyakarta. To support the need of these populations the state
needs to spend a lot fund to build new social facilities, such as public service: school,
hospital, and others. This would create business opportunity but the market may be
very limited. Moreover, the economic status or poverty rate such as in Papua is still
high whereby the purchasing power also low.
Population structure by age also can be used to examine the dependency
ratio (population age 0-14 plus >65 or unproductive divided by population age 15-49
plus 15-49 or productive population). In Indonesia dependency ratio are 58 that mean
100 productive populations carry on 58 unproductive populations. The decline of
population growth seems to have an influence upon dependency ratio. Yogyakarta
dependency ratio is lower in comparison to Riau and Papua. The high dependency
ratio may be could hinder development process because part of the income has to be
spent for unproductive population need leading to the low purchasing power of
population. This information can help what kind of business chosen if would like to do
business in the area like that.
The population age structure is able to provide information about family
structure (size). Since the proportion of age 15-64 is higher ranging from 65% to 68%
in Papua and Riau province and national level, this indicate that number of young
families is bigger. Young family needs many housing facilities, domestic goods, both
secondary and tertiary goods than old families. In normal economic condition, this
may able to create market for business activities.
Based on the population growth and age structure data we could predict the
change in age structure for several years ahead. This could help to develop a

11
business planning several years ahead. If the data is available, we could make
several assumptions on the decline of fertility rate, mortality rate and migration and
then incorporating them into a model so that several alternatives of change of age
structure could be developed. Based on those assumptions we could make several
planning alternative for business development. Table 6 contains data result from
population projection in several provinces for the year 2010 based on an assumption
that population growth, fertility, mortality, and migration are similar to the year 2000-
2003 fell from 44% to 10% for men and from 69% to 16% for female. In addition, in
this period also experienced a rise in secondary enrolment from 10% to 40%. Despite
a massive effort carried out by the state, in term of education level, Indonesia lagged
far behind the neighboring countries such as the Philippines, Malaysia, and
Singapore. More than two third of the population above 10 years old are only
graduated from primary school. Graduated high education (tertiary education) are
very low about 2% in 1990 and increased to about 4% in 2005, except Jakarta,
Yogyakarta, Bali, East Kalimantan, Kepulauan Riau (see Table 7). Low level of
education to some extent has implication on the quality of human resources led to
low of purchasing power since they involved in low wages of employment (informal
sector). In Eastern Indonesia, the proportion of population had graduated from
secondary and tertiary not much difference from rest of Indonesia. This may has
influenced why investor not interested in to invest their capital in some provinces of
Indonesia. Not only skill labors are difficult to find out but also the market could not
develop cause of purchasing power is lower.
Table 6 present the projection result, there is a tendency that Indonesia
population would change toward old population. In Yogyakarta the proportion of
ageing population was increasing while the population under 15 was decreasing.
Riau in the year 2010 do not severe any significant changes, only the population
aged 15-64 a bit increasing. Population structure in Papua for 2010 in not much
different from the structure in the year 2000, for the next 10 years, according to the
result of population projection of Riau and Papua they would not need any significant
change yet. In Yogyakarta there would be needed business planning which could
fulfill the needs of the ageing population. Businesses that are serving baby needs
and children or population under 15 years old have reduced.
These aggregate shifts in age structure are very important because many
needs for good and services are strongly concentrated in particular age groups. This
will cause corresponding variations in the level and type demand for particular goods
and service. It is difficult to find data refer to Indonesia that can use to show the
relationship between expenditure and age structures. To illustrate those relationships

12
we use examples Australian household expenditure and American expenditure by
various broad categories according to the age structures see Figure 1 and Figure 2.
Figure 1 indicates that the expenditures of household for recreation tend to increased
gradually up age groups 45-55 and then decrease gradually. This means that age
groups below 33-35 are potentially for recreation market. The market for clothing,
medical care, housing and food could be identification as well. This pattern similar to
the united state as indicated in figure 2. By analyzing relationships between age
structure and household expenditure, we able to identified demand (market) for
various goods and service. It is important to note that age structures not only main
factor shaping demand for a product, but it can be use to understand the potential
market. This means that one of the areas where demographic analysis may be most
helpful to businessman is that it can help in identification the location of potential
market. In addition, it can help in understanding the behavior of the diverse
consumer groups that make up markets for goods and services both for existing
situation and for the future.

FIGURE 1
Australia: Average Weekly Household Expenditure on Selected
Items by Age, 1988

120

100

80

60

40

20

0
24 and 25-34 35-44 45-54 55-64 65+ age
under

housing food recreation clothing medical care

Source: Hugo, Graeme, 1981, p. 8

13
 FIGURE 2
United States: Expenditure on Selected Items by Age, 1988

2000

1600

1200

800

400

0
less than 25-34 35-44 45-54 55-64 65-74 75+ age
25

rent food away from home education health care

Source: Hugo, Graeme, 1981, p. 9

Education
Structure and level education of population is important data and information
can be use for helping in developing business activity. Data and information on
population education structure and level of a region could give a picture of skill
formation of the labors that is needed for supporting business activities. The region
has low level of education maybe less attractive for business activities which needs
support of skilled labors. For business activities that do not really on unskilled labors
the low level of education structure would not be a problem but the level of wage
would still be in consideration. Usually educated skill labors require different wages
from unskilled labors. Business activities that are trying and seeking to find out low
wage levels tend to look for regions have low level of education.
Education level of population in normal condition could also be used as an
indicator for understanding economic status of population. Regions with relatively
have high proportion of educated people tend to have high incomes. Hence, it could
also be used as proxy purchasing power of population. The life style and the need of
population are influencing by education level. Based on those reasons, the need for
goods and service for educated and uneducated people are different. As an example,
the computer business could develop well in Yogyakarta because the proportion of
highly educated populations is higher but computer business would not develop in

14
regions where the proportion of educated population is low such in Papua or Central
Kalimantan.
In the period between 1973 and 1991, the state has spending large
investment for school building program. The out come is impressive, primary
enrolment gradually increase close to 100%. As a result, there was a steady
declining in illiteracy, between 1961 and - 2003 fell from 44% to 10% for men and
from 69% to 16% for female. In addition, in this period also experienced a rise in
secondary enrolment from 10% to 40%. Despite a massive effort carried out by the
state, in term of education level, Indonesia lagged far behind the neighboring
countries such as the Philippines, Malaysia, and Singapore. More than two third of
the population above 10 years old are only graduated from primary school.
Graduated high education (tertiary education) are very low about 2% in 1990 and
increased to about 4% in 2005, except Jakarta, Yogyakarta, Bali, East Kalimantan,
Kepulauan Riau (see Table 7). Low level of education to some extent has implication
on the quality of human resources led to low of purchasing power since they involved
in low wages of employment (informal sector). In Eastern Indonesia, the proportion of
population had graduated from secondary and tertiary not much difference from rest
of Indonesia. This may has influenced why investor not interesting to invest their
capital in some provinces of Indonesia. Not only skill labors are difficult to find out but
also the market could not develop cause of lower purchasing power.
Data from Table 7 shows that within 15 years, from 1990 to 2005, the change
of education level of population not significant. The proportions of primary educated
populations are decreasing followed by increasing of graduates of secondary school
but the proportions of population that have graduated from tertiary education are still
low. Only a few provinces such as Jakarta, Yogyakarta, Bali, and East Kalimantan
show significant increase. This indicates that improvement of welfare have not shown
any significant changes in several provinces. From the business point of view, those
changes have not yet give meaning because the possibility of market expansion is
still difficult to develop. May be this is one of the obstacles in tracking investors to
invest their capital in several provinces, especially in the eastern provinces of
Indonesia.

15
 Table 7
Education Structures of Population by Province in 1990 and 2005
Province 1990* 2005**
Education (%) Education (%)
Primary Secondary Tertiary Primary Secondary Tertiary
Ache 73.2 25.4 1.4 51.9 45.2 2.9
North Sumatra 69.8 28.7 1.5 55.7 40.8 3.5
West Sumatra 72.1 26.1 1.8 61.8 33.5 4.7
Riau 75.8 22.8 1.4 60.3 36.6 3,1
Jamb 78.3 20.5 1.2 63.0 33.3 3.7
South Sumatra 79.1 19.8 1.1 64.2 32.3 3.5
Engulf 76.8 21.5 1.6 62.7 33.6 3.7
Lamping 81.7 17.5 0.8 68.5 29.2 2.3
Bangka Belitung - - - 69.7 28.1 2.2
Kepulauan Riau - - - 45.8 48.5 5.7

DKI Jakarta 51.9 42.8 5.3 39.1 50.8 10.1

West Java 80.9 17.8 1.3 66.6 29.6 3.8
Central Java 83.0 16.0 1.0 71.2 25.7 3.1
Yogyakarta 67.7 29.4 2.9 52.1 39.2 7.9
East Java 81.2 17.6 1.2 67.3 29.4 3.3
Banten - - - 63.4 33.0 3.6

Bali 75.6 22.4 2.0 60.5 33.2 6.3

West NusaTenggara 84.5 14.5 1.0 76.8 21.1 2.1

East Nusa Tenggara 86.2 12.8 1.0 78.9 18.9 2.2

West Kalimantan 83.7 15.3 1.0 69,6 28,1 2.3

Central Kalimantan 76.3 22.6 1.1 63.2 34.0 2.8
South Kalimantan 78.2 20.6 1.2 66.3 29,9 3.8
East Kalimantan 69.2 28.5 2.3 53.3 41.4 4.4

North Sulawesi 71.2 26.9 1.9 53.0 42.5 4.5

Central Sulawesi 78.0 20.6 1.1 67.7 28.9 3.4
South Sulawesi 76.7 21.5 1.8 66.8 28.8 4.4
Southeast Sulawesi 77.8 20.8 1.4 66.1 29.8 4.1
Gorontalo - - - 74.2 23.2 2.6

Maluku 74.9 23.7 1.4 59.8 36.5 3.7

Maluku Utara - - - 61.9 35.7 2.4

Papua 79.6 19,0 1.4 70.7 26.6 2.7

Source: *BPS, 1992, Population of Indonesia: Result of Census 1990, Seri S2, p.141
**BPS, 2006, Population of Indonesia: Results of the Inter census Population Survey 2005,
Serises S1, Jakarta, p. 102

16
Employment
Besides education as discussed in the previous section, labor force and
employment data could also be use as an indicator to examine the social and
economic transformation process of a region. Labor force participation rate could
show populations participation in labor market. The higher labor participation rates
means the working age populations who are in endeavor to be involved in economic
activities are high. Population growth, the expansion of education, the willingness of
female to enter labor market, and the type of employment in a region could determine
labor force participation in the labor market. Regions which is still depend much on
agricultural sector or informal sector as a source of their income, the labor force
participation rate are significantly higher compared to regions where the economy
rely on manufacturing sectors. Understanding these data and information,
businessman could examine the changes that will happen and could develop a plan
or model for predictions on labor force supply and market prospect for business
development or expansion.
In period 1990-2005, the labor force participation in all provinces has
experienced a significant increase (see Table 8): from below 60% rise to a level
above 60%. This reflects that the flow of working age population for entering labor
market is increasing. Population growth that occurred 20 years ago has contributed
to this increase. Babies born 20 years ago are starting to enter the labor market. This
increase of labor participation rate might also cause of the increase of female labor
force entering the public sectors a long with the increase their education. However,
not all of the working age populations acquire employment as their aspiration. Most
of them are continuing looking for jobs owing to the competition to enter labor market
more tight in recent years. As the results, open unemployment has been increasing
more than twice in period 1990-2005. This is an indication that labor market not able
to absorb labor force. This means that economic transformation could not happen led
to hamper in improving the quality human resources. This is of course as impact of
economic crisis that take place since the mid of 1997.
During economic crisis, access to job opportunities in informal sectors
became even more difficult to be entering by labor force. The competition became
even difficult because among middle class workers and skill labor during the
economic crisis seek to find prosperity in informal sector. Many workers of the formal
sector that has discharged or received trouble in putting an effort in formal sector
also attempt to enter the informal sector. Economic crisis has effect the slowing down
of economic activities, except agricultural sectors. In fact, several sectors such as

17
 Table 8
Labor Force Participation Rate and Open Unemployment by provinces 1990 and 2003
Province 1990* 2005**
Labor Force Open Labor Force Open
Participation Unemployment Participation Unemployment
Rate (%) (%) Rate (%) (%)
Ache 53,2 2,8 68.4 12.5
North Sumatra 53,9 3,2 71.9 11.0
West Sumatra 51,0 3,0 62.5 11.5
Riau 53,2 2,8 62.8 13.9
Jambi 56,6 1,9 66.0 8.6
South Sumatra 54,9 2,9 71.2 8.6
Bengkulu 59,5 1,8 75.5 6.1
Lampung 56,8 1,9 68.9 6.9
Bangka Belitung - - 65.0 8.1
Kepulauan Riau - - 64.2 12.4

DKI Jakarta 48,7 7,1 63,1 14.7

West Java 49,7 4,1 62.9 14.7
Central Java 58,6 2,6 71.1 8.6
Yogyakarta 63,4 2,5 71.9 5.1
East Java 57,3 2,7 69.5 8.5
Banten - - 63.0 14.2

Bali 61,7 2,0 79.1 4.0

West Nusa Tenggara 59,2 2,2 70.1 8.9

East Nusa Tenggara 63,2 0,8 79.9 5.5

West Kalimantan 61,2 1,9 73.5 8.6

Central Kalimantan 58,7 1,8 73.2 4.8
South Kalimantan 57,8 3,3 71.7 6.2
East Kalimantan 53,6 4,3 64.7 9.0

North Sulawesi 51,3 4,3 62.3 14.4

Central Sulawesi 54,5 2,7 66.9 7.6
South Sulawesi 44,1 4,8 63.3 13.6
Southeast Sulawesi 53,5 3,3 71.1 8.9
Gorontalo - - 62.8 9.8
Sulawes - - 61.0 6.4

Maluku 49,6 3,4 59.2 12.3

North Maluku - - 69.8 8.9

Irian Jaya Barat - - 71.7 10.2

Papua 60,9 3,1 78.3 7.1

Source: *BPS, 1992, Populations of Indonesia: Result of Census 1990, Jakarta, Seri S2, p.267
**BPS, 2007, Statistical Yearbook of Indonesia, Jakarta, p. 84

18
construction, manufacturing industries, finance and trade decreased to a negative
level (Boediono, Ace Suryadi, and Rusman Heriawan, 1999). In that condition, many
business activities are suffer from bankruptcy. This condition was very difficult for
business activity actually, before the economic crisis if we had already made effort to
pay close attention to statistic numbers we could have anticipated possibilities that
could occur. But what
We have to bare in mind that we could not expect that economy crisis would
happen as we experienced, moreover unexpected political variable had came to
influence. An important lesson we could gain from that experience is that inefficient of
management, with no transparency and no accountability has destroyed all of the
essential potency of economic activities. As a result, unemployment increase, social
conflict and social disturbances occur everywhere, investors withdraw from Indonesia
and business activity becomes sluggish with much less prospect.
The slowing down of business activities associated with economic crisis has
hampered labors transformation from agriculture towards industrial sector or from
traditional toward modern sectors. Despite agriculture continued being a vital source
of employment, the shift towards manufacturing has occurred since 1990 (see Table
9). In 2005 except Jakarta, agriculture continued to employ the labor force. During
economic crisis agriculture sector have to absorb many return workers of urban
areas that have lost their job because of the firm bankruptcy. For survival strategy,
most of urban workers have to return to their home villages. This have increasing
number of disguised unemployment due to the possibility to find out a full time job is
quite difficult in the villages. The proportion of disguised unemployment before crisis
is about 35% and the largest proportion are in the villages (Johnson: 1997:35).
During economic crisis, the proportion of disguised unemployment has reaching 40-
50 millions or 50%. These employment problems became more complicated because
during the crisis, thousand of migrant workers who are working in Malaysia and
Singapore are return to the home village.
Like in Jakarta and in several large cities, many middle class people,
including celebrities, seek to enter informal sector during the crisis. Because of that,
the proportion of workers entering informal sectors increase from 65% in 1997 (the
beginning of crisis) and became 68% in 1998 (during the crisis) all of that, causes a
decrease in their income and purchasing power rapidly. The number of population
living under poverty has increased from 12 million in the beginning of 1997 to 80
million in the middle of 1998. Poverty rate in the rural areas have reached 53% and in
the cities 39% (ILO, 1998: 99). The poverty rate could still be debatable

19
 Table 9
Percentage of Population 10 Years and over Worked During The previous Week by Industry
and Province in 1990 and 2005
Province 1990 (%)* 2005 (%)**
Agriculture Industry Service Agriculture Industry Service
Ache 65.5 8.9 25.6 55.4 10.9 33.7
North Sumatra 60.4 10.4 29.2 49.6 11.4 39.0
West Sumatra 59.8 9.2 31.0 45.4 13.6 41.0
Riau 58.1 13.1 28.8 55.1 13.1 31.8
Jambi 69.7 8.1 22.2 57.8 9.9 32.3
South Sumatra 64.5 10.4 25.1 64.5 7.7 27.8
Bengkulu 70.9 6.4 22.7 62.9 7.3 29.8
Lamping 70.2 8.7 21.1 61.7 13.1 25.2
Bangka Belitung - - - 28.7 39.2 32.1
Riau Island - - 19.6 32.0 48.4

DKI Jakarta 1.1 28.1 70.8 0.7 22.1 77.2

West Java 36.8 23.2 40.0 26.4 25.1 45.8
Central Java 47.9 19.4 32.7 38.5 24.1 45.4
Yogyakarta 45.5 19.4 35.1 35.0 19.6 35.7
East Java 50.1 16.4 33.5 44.8 19.5 34.1
Banten - - - 22.0 25.5 52.5

Bali 44.1 21.5 34.4 25.3 20.8 53.9

West NusaTenggara 54.3 16.9 28.8 47.2 15.7 37.1

East Nusa Tenggara 75.2 12.2 12.6 74.5 10.7 14.8

West Kalimantan 72.5 8.1 19.4 64.1 9.9 26.0

Central Kalimantan 61.9 15.2 22.9 64.0 8.4 27.6
South Kalimantan 53.8 14.6 31.6 41.2 15.6 43.2
East Kalimantan 43.2 20.5 36.3 35.7 20.2 44.1

North Sulawesi 55.7 13.0 31.3 41.2 14.7 44.1

Central Sulawesi 67.5 8.8 23.7 68.9 5.1 26.0
South Sulawesi 57.6 10.1 32.3 47.9 11.0 41.1
Southeast Sulawesi 68.0 7.8 24.2 60.1 10.5 29.4
Gorontalo - - - 55.3 13.5 31.2
West Sulawesi - - - 60.8 7.7 31.5

Maluku 62.0 11.4 31.3 59.5 8.1 32.4

North Maluku - - - 65.1 6.9 28.0

West Irian Jaya - - - 67.1 6.7 26.2

Papua 71.9 6.9 21.2 78.0 5.8 16.2
Source: *BPS, 1992, Population of Indonesia: Result of Census 1990, Jakarta, Seri S2, p.312
**BPS, 2007, Statistic Yearbook of Indonesia 2007, Jakarta, p. 70-71

20
because each formula have different outcome. Without the formula, in reality we
could witness that incidence of poverty have grown rapidly because of riots and
social conflict that are happening in several places. It not only forces populations to
flee and life in tents or evacuation place but also force million of people to lose their
homes and properties. This means, during the economy crisis followed with many
social riot cause people that live in poverty line increase significantly. This surely
does not give advantage for business atmosphere. There is a tendency the economic
condition being better since 2003 but the instability of political has been hindering of
the investor to come to Indonesia leading to business opportunities not developed as
expected.

CONCLUDING REMARKS
Demographic data and information have significance for business activities
because they can help businessman to develop, expand and also planning for their
enterprises. It is important to bear in mind that the relationship between demographic
variables and business is not linear relationships. Their relationships only could
happen in a normal condition. In an economic crisis condition, the relationship is
quite difficult to be examined. Without any carefulness, the conclusion that we take
might could be misleading.

21
 REFERENCES

Boediono, Ace Suryadi, dan Rusman Heriawan, 1999, Keadaan dan

Perkembangan Pendidikan Setahun Setelah Krisis, Jakarta, Departemen
Pendidikan dan Kebudayaan, Badan Penelitian dan Pengembangan Pusat
Informatika (unpublished paper)
BPS, 1992, Population of Indonesia: Result of Census 1990, Jakarta, Seri S2
BPS, 2006, Population of Indonesia: Results of the Inter census Population Survey
2005, Serises S1, Jakarta
BPS, 2007, Welfare Indicators 2006, Jakarta
BPS, 2007, Statistic Yearbook of Indonesia 2007, Jakarta
BPS, Bappenas, UNDP, 2004, National Human Development Report 2004, The
Economic of Democracy: Financing Human Development in Indonesia,
Jakarta
ILO, 1998, Employment Challenges of the Indonesian Economic Crisis, Jakarta,
UNDP
Hugo, Graeme, 1991, “What population Studies Can Do For Business”, Journal Of
The Australian Population Association, Vol. 8, No 1, p. 1-22
Johnson, Colin, 1997, “The Indonesian Economy: Survey Recent Development”,
BIES, 33 (2)
Manning, Chris, 1998, Indonesian Labor in Transition: An East Asian Success Story,
Melbourne and Cambridge University Press
World Bank, 1995, Workers in an integrating World, New York, Oxford University
Press

22