# **5. Conclusion**

This paper has argued that the `scarring’ literature can be made more relevant to low and middle income countries through the concept of labor market scarring‐ where certain types of jobs may be associated with human capital deterioration or stagnation resulting in zero or negative returns to work experience. Also, it was argued using data from IFLS, that self‐ employment in Indonesia may largely be low quality, as a variety of desirable work characteristics are not present. For example, self‐employment is not associated with having pensions, health benefits or formal training. In particular, it seems that self‐employment without a permanent worker is inferior to having a full time job in the private sector and to government work. In addition to identifying differences in job quality, this paper investigated job mobility over the period of 1993 to 2007. Strong patterns of persistence were identified for several types of work, including self‐employment and government work. In particular, successful entrepreneurship appears to be rare, with very few individuals progressing from ‘petty’ self‐employment (i.e. without a permanent employee) to self‐ employment with a permanent employee. This may be cause for concern as youth who start work in self‐employment may fail to develop their human capital, and may experience zero or negative wage growth over the long term.

While the human capital implications of different types of work experience are not directly observable, we can observe the long run impact on wages. In section 4 of the paper we estimate the effect of self‐employment experience, government employment experience and private sector experience on wages using fixed effects estimation with a broad range of control variables. In doing so, we fully control for time invariant heterogeneity (such as gender) and partly control for time variant heterogeneity (such as being the head of household). We present estimations for both youth and older adults so that any scarring effects specific to youth may be identified.

The results are largely consistent with the descriptive analysis presented in section 3 of the paper that suggested the possibility of labor market scarring from periods in self‐ employment. For every year spent mostly in self‐employment, there is about a 3‐4% penalty on current wages. In contrast, for older adults we find positive returns to all types of experience. Considering the very limited research on scarring, mobility and job quality in the labor markets of low and middle income countries, the evidence presented helps to fill a major gap in the literature.

Given the heterogeneity of working forms in most low and middle income countries, further research should be conducted to investigate scarring from a wider range of labor market experiences. In Indonesia the government is considering the value to policy making of collecting the data that will allow analysis of scarring from periods of work without a written labor contract; less‐than‐full time positions; as outsourced labor, and other forms of engagement. Scarring can indicate when valuable human capital may be lost, with implications for both household welfare and labor productivity in the economy. If evidence 33