This chapter focuses on linkages between economic growth, employment creation, and poverty alleviation. Broadly speaking, the fruit of economic growth is distributed through income opportunities and social policies that redistribute income, such as progressive taxation and social security, and that enhance economic opportunities of the deprived, such as education and public health. Because of limited space, the chapter's scope of discussion is confined to economic growth and poverty alleviation through employment. The chapter focuses on employment, not other forms of income opportunities, because employment is often the only reliable means of income for most citizens and the deprived. It is increasingly accepted that realizing high economic growth alone does not necessarily guarantee poverty alleviation. The economic and labor market performances in Indonesia during the decade after the Asian financial crisis (AFC), corroborate this observation, and similar evidence abounds elsewhere in the world. This chapter thus sheds light on the relations between economic growth, employment creation, and poverty alleviation in Indonesia in order to gain insight into strengthening the linkages.
The effect of economic growth on poverty reduction depends largely on the employment parameter that connects the two. Creation of employment can be considered as a function of economic growth, but the relation is not linear, because many variables affect the capacity of the economy to generate employment, which will be discussed in the first half of this chapter.