Efficiency of labor allocation: An observation in Indonesian Standard Industrial Classification (ISIC)

Abstract

This study aims to analyze the efficiency and elasticity of the large and medium manufacturing industry sector in Indonesia from 2012 to 2020. The analysis focuses on the 24 subsectors within the 2-digit Indonesian Standard Industrial Classification (ISIC) principal groups 10 to 33. The efficiency level of the manufacturing industry sector was analyzed using the Cobb-Douglas production function model with linear logarithmic transformation. During the period 2012–2020, the production efficiency of the 24 ISIC 2-digit subsectors increased by an average of 445%, or 4 times higher than before. The ISIC 2-digit subsector (24 subsectors) had output elasticity values smaller than one (EL < 1) or inelastic 45 times. This indicates that the marginal value added of labor was lower than the average value added of labor. Therefore, the additional allocation of labor in large and medium industries tends to reduce the average value added of labor. The computer industry, electronic and optical goods computer, electronic and optical goods had the highest efficiency index in order, according to the data. This can be achieved by focusing on industries such as ISIC 17 (paper and paper goods industry), ISIC 31 (furniture industry), and ISIC 29 (motor vehicle, trailer and semi-trailer industry). To improve the efficiency of labor allocation, it is necessary to optimize the use of labor resources, increase productivity, and remain competitive in the market. To improve efficiency and elasticity, it is recommended to implement a robust workforce planning strategy that aligns labor resources with production needs. Additionally, matching the skills and abilities of the workforce with job roles is crucial. Finally, identifying tasks that can be automated using technology can also increase efficiency.