Essays on Inclusion in Indonesia: Concept, Evidence, and Policy

Seizing development that is accessible for all requires a thorough understanding of welfare concepts and measurements. The objective of international development has shifted from economic growth (often measured as changes in per capita income) to inclusive development (often referred to as progress in achieving various wellbeing elements). This highlights the urgency in generating economic progress that would translate into an equal distribution of not only material resources, but also non-material resources. Many efforts have been given to the understanding of materials-based welfare notions such as income poverty or inequality. The gap in our understanding of the non-material aspect of the concept of welfare, such as the empowerment and participation of the low-income and disadvantaged groups in seizing opportunities to achieve wellbeing needs to be addressed. Achieving inclusive development would thus require an in-depth understanding of all individuals™ participation in the process, popularly known as social inclusion. This thesis focuses on the concept of inclusion to understand deficits in development, and provides an in-depth investigation of the concept, as well as evidence and policy lessons in the area of inclusion. The objective of this thesis is to enhance our understandings of inclusion, with a particular focus on its economic domain. First, it sets out to provide a greater clarity of the concept of inclusion as key to the understanding of underdevelopment. Disadvantaged groups often face barriers to participating in good- quality education, building skills, and finding appropriate jobs in the labour market. Motivated by this, this thesis also investigates deficits in economic inclusion, with a focus on the labour market. Lastly, it examines a policy aimed at achieving inclusiveness in the education sector. The main research questions are the following: (1) How can we use the concept of inclusion to better understand development deficits? (2) What factors explain economic inclusion? (3) Does decentralization facilitate an inclusive progress in improving the quality of education? To achieve the objectives, this thesis takes Indonesia as a country case study. To answer the first research question, the study first undertakes a systematic literature review. It examines the extant debate on the twin concept of exclusion vis-a- vis inclusion. It starts with a critical review of the evolution of the exclusion concept, identifies the key schools of thought, outlines the key debates, and proposes a conceptual framework of inclusion as an alternative to that of exclusion. The paper argues that inclusion is not the opposite of exclusion and can serve as an alternative to the understanding of underdevelopment. Taking the case of social assistance in developing countries, the paper illustrates the application of an inclusion lens in forming a social policy. The second question focuses on a form of economic exclusion in the context of the labour market by taking the case of Indonesia. The paper asks the question as to whether there is job polarisation in Indonesia in the midst of structural transformation and growth, whether declining and subsequently levelling off of earnings inequality is good for long-term economic health, and how the welfare of low-earning workers is influenced by the interplay of structural economic characteristics and policy interventions in the form of minimum wages. The study utilizes household data of the Indonesian Family Life Survey (IFLS) covering the 2000-2014 period. It applies a decomposition technique to decompose the changes in wage inequality into the part that is explained by the shift in workers characteristics and the part that is accountable for the change associated with those characteristics. I found that declining earnings inequality was largely driven by declining returns to skills. The results also indicate the relatively low ability of the economy to absorb high-skilled workers and