Factory Workers Turned Entrepreneurs

7 February 2018
ABOUT THIS Perspective

To what extent do young people aspire to life-long industrial jobs, independent of pay or working conditions? And what work do they do once they've left the factory?

Employment journeys in the formal and informal economy of Semarang Regency, Indonesia

Advocates, workers’ organizations and scholars have long pointed to the contingent and short-term nature of work in labor-intensive manufacturing sectors like garments and food processing, where large firms often rely on young workers – especially women – to power their factories.  However, less attention has been given to a set of related concerns: To what extent do young people aspire to life-long industrial jobs, independent of pay or working conditions? And what work do they do once they’ve left the factory?

Qualitative interviews with young migrants in the industrial areas south of Semarang – a port city in Central Java – speak to these questions and offer important insights about the factors that shape the employment journeys of young people in 21st century emerging economies. The data was collected as part of an ongoing project of JustJobs Network, in collaboration with the Centre for Policy Research in New Delhi, which seeks to understand the employment and migration experiences of young people in non-metropolitan urban geographies in India and Indonesia.

We find that youth in the industrial cluster of Semarang Regency have complex working lives that reflect the dynamic interplay of the formal and informal economy. Moreover, young industrial workers tend to see factory jobs as only one stage in the course of an entire employment journey.

Consistent with earlier scholarship, we find that youth working in the area’s garment factories tend to see factory work as offering limited opportunities for wage growth, skill development and economic mobility. Beyond this, however, many factory workers express an interest in starting their own businesses, placing high value on the independence they would gain through self-employment – even if it means earning less. In fact, a common phenomenon among older migrants who were interviewed is the “usaha sampingan” – or side business – which many imagine will eventually be their primary form of employment, after they leave their factory jobs.

This observation gives rise to two different insights. First, it suggests that young people use the capital they accumulate in factory work to invest in their own enterprises later in their working lives. And second, it illustrates that young workers’ early exit from factory jobs is driven by both push factors – such as the contingent nature of contracts and constrained wage growth – and pull factors – young people’s aspirations for something more than an assembly line job. Women in particular value the independence of entrepreneurship, which gives them the flexibility they need to take on care work.

Another interesting finding of our work in Semarang Regency regards the dynamic relationships between the formal and informal economy, and the way former factory workers’ enterprises promote these linkages. Some of the businesses that workers start after leaving factory work are directly tied to the skills they learned on the job. For example, we met an entrepreneur who buys scraps of fabric from local factories and weaves rugs, dishcloths and other textile products from them.

In other cases, former factory workers establish businesses that cater to current factory workers, relying on tacit knowledge of their social and economic needs. For example, we met a man running a boarding house and motorbike parking lot next to a major garment factory. He migrated for a job at the same factory and left it after a period of years to set up his enterprise across the road. Many other types of service providers similarly co-locate with large factories – like laundry services, repair shops, mobile phone recharge kiosks, and food stalls. The purchasing power of factory workers is significant: in our survey, respondents estimated their monthly budget for leisure and entertainment at IDR 300,000 (US$ 22), around 20 percent of their wages.

What are the policy implications of these insights? The first relates to the target populations for entrepreneurship programs. As a 2014 JustJobs Network study indicated, entrepreneurship policies in countries like Indonesia tend to target unemployed and underemployed young people who may have no option beyond starting a micro-business. These sorts of interventions miss the possibility of giving factory workers like those in Semarang Regency the tools they need to build businesses once they enter a new stage of their working lives. Moreover, while current policies tend to promote “survival” entrepreneurship, a different strategy – focused on harnessing the education, skills, work experience, capital as well as tacit knowledge and social networks of entrepreneur ex-factory workers – may be more successful in generating growth-oriented small and medium-sized enterprises. Such businesses will do more to address the major job creation challenge facing emerging economies like Indonesia than sole proprietorships.

Second, the trend our research reveals in Indonesia suggests that policymakers may need to adopt a different approach to informality. While a job’s formality is often used as a proxy for its quality – with labor market reforms reflexively oriented toward formalization – the active choice of some workers to move from the formal to the informal economy implies that formal and informal jobs may suit different needs at different stages in a worker’s employment journey. Smaller, self- and family-owned enterprises, which today largely operate in the informal economy, have certain qualities that appeal to workers.

This means two things: (1) Governments ought to consider long-term, fiscally sustainable approaches to creating strong safety nets for informal economy workers and entrepreneurs; along these lines. Indonesia’s recently rolled out universal health and employment insurance – BPJS – is a step in the right direction. And (2) The effort to formalize must be seen as a flexible, incremental process, one that enables small, everyday enterprises to thrive rather than squeezing them out of the economy in favor of large industrial outfits like those employing garment workers in Semarang. The relationship between these two types of firms is complementary – not only for the economy but for the individual worker over the course of her employment journey.