Compared to informal work, youth employment in the formal sector (as defined by Sakernas) is generally associated with higher wages (unconditionally 18.8% higher in 2010) and employment benefits such as pensions and healthcare. It is suggested that the informal/formal dichotomy may be the best simple proxy for job quality. Differences in wages between formal sector and informal sector jobs are even greater for older workers suggesting that there may be long‐term earnings benefits accrued from experience in formal jobs. In contrast, “For most self‐employed informal workers, having access to formal paid jobs would lead to much better wages and benefits than self‐employment. In other words, in the Indonesian context, informality is result of necessity, not choice. Thus the type of job is a good indicator of “quality”, and salaried employees (a proxy for formality) enjoy the highest income and most benefits at any education level.” (Cerdan‐Infantes et al., 2010, p.15) In the absence of a formal contract, firms may be less likely to build human capital as they may view non‐permanent workers with a short term perspective. It is possible that Indonesian youth working in petty self‐employment, unpaid work and other informal employment may not be gaining work experience that is valued in the labor market. Consequently, career progression for these youth could be limited relative to youth with better quality work experience. Specifically, youth with these jobs may experience lower wage growth when transitioning between jobs and may be more likely to be persistently employed in these unfavorable jobs than youth that enter the labor market in favorable jobs. However, there is no empirical research regarding this in Indonesia. This gap in the literature is significant as if there is some type of wage scarring for youth in Indonesia, there could be several important policy implications. These include assisting youth to find better quality work whilst simultaneously promoting growth in educational attainments and growth in the supply of formal sector jobs. We will look further at the issue of the types of work that may be deemed “low quality” in section 3.3. In order to analyze the mobility, job quality and labor market scarring of youth in Indonesia we use the Indonesian Family Life Survey (IFLS).

IFLS is an on‐going panel survey in Indonesia that had its first wave in 1993, initiated by RAND in collaboration with Lembaga Demografi, University of Indonesia. The IFLS sample was designed to be representative of about 83% of the Indonesian population in its first wave. It covers 13 of Indonesia’s 27 provinces and contains over 30,000 individuals. Since it began, there have been 4 waves of data collection completed with a fifth wave of data collection planned for 2014/15. IFLS2 and IFLS2+ were conducted in 1997 and 1998, respectively, with IFLS3 fielded in 2000 and IFLS4 fielded in 2007/2008. IFLS is a broad ranging survey with a considerable depth and breadth of information collected at the individual and household levels. Most importantly for the purposes of this paper, it contains panel data on education, labor market outcomes (including job characteristics), labor market history, marriage, household assets. IFLS also collects data on health, migration, village level characteristics, social relationships and other indicators of economic well‐being 12