# **Appendix: Construction of skills measures**

With the objective of constructing skills measures of occupational groups in the Indonesian labor market, we faced the problem of not having direct information on the skill content of occupations in this country. In this situation, the approach followed by many studies is to use the U.S. Department of Labor’s O*Net database, which collects occupation-specific attributes for detailed occupations. The disadvantage of using U.S. data is that these two countries, the United States and Indonesia, differ in their development levels and production technologies, which may impact both the levels and rankings of the skills used in each occupation. Another possibility is to use information from the STEP (Skills Towards Employment and Productivity) survey, which is collected by the World Bank in some East Asian countries, such as Vietnam and the Philippines. This is an individual-level survey conducted among working-age people (15-64) mostly residing in urban areas. This urban feature of the STEP survey is a disadvantage for a country like Indonesia where only half of the population is urban. We decided to proceed using the STEP survey of the Philippines for our main results, a country from the East Asian region with a development level similar to Indonesia, and the U.S. O*Net database as a robustness exercise.<sup>8</sup>

# **A) Skills measures using the Philippines STEP survey**

We use the 2015-2016 Philippines STEP survey to construct the skill content of occupations using the following categories: non-routine analytical, non-routine interpersonal, routine cognitive, routine manual, and non-routine manual. We work with a sample of 1,565 workers aged 15-64. We mapped the <mark>Philippines Standard Occupational Classification, that follows closely the International Standard Classification of Occupations (ISCO) 2008, to the Indonesian Classification of Occupation 1982 that is used in the Sakernas (the I</mark> ndonesian National Labor Force Survey). <mark>We work with six occupational groups: administrative and managerial workers; professionals and technicians; clerical workers; sales and services workers; agriculture, animal husbandry, forestry workers, fishermen and hunters; and production workers, transport and equipment operators, and laborers. We combine the variables capturing each type of skill in the STEP survey into a single skill measure for each occupation following the methodology applied by Acemoglu and Autor (2011). The variables used are listed in the second column of Table A1.</mark> First, for each variable associated with any of the five types of skills, we calculate the mean and standard deviation across the sample of 1,565 workers and standardize the variable by subtracting the mean and dividing by the standard deviation. Second, for each worker we obtain scores for each of the five types of skills by adding all the standardized variables obtained in the previous step associated with non-routine analytical skills (7 variables), non-routine interpersonal skills (3 variables), non-routine manual skills (4 variables), routine manual skills (1 variables), and routine cognitive skills (1 variable). We standardize each of the five scores by subtracting its mean and dividing by its standard deviation. Finally, for each occupational group, we calculate a weighted average of the value of each of the five standardized skills scores using as weights the contribution

> 8 We decided to use the STEP survey of the Philippines instead of Vietnam because for the latter country the survey only covers main cities.

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