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Analysis that deals with how profits and costs change with a change in volume

INTRODUCTION Analysis that deals with how profits and costs change with a change in volume. More specifically, it looks at the effects on profits of changes in such factors as variable costs, fixed costs, selling prices, volume, and mix of products sold. By studying the relationships of costs, sales, and net income, management is better able to cope with many planning decisions. For example, CVP analysis attempts to answer the following questions: (1) What sales volume is required to break even? (2) What sales volume is necessary in order to earn a desired (target) profit? (3) What profit can be expected on a given sales volume? (4) How would changes in selling price, variable costs, fixed costs, and output affect profits? (5) How would a change in the mix of products sold affect the break-even and target volume and profit potential?
COST VOLUME PROFIT ANALYSIS Cost-volume-profit analysis (CVP), or break-even analysis, is used to compute the volume level at which total revenues are equal to total costs. When total costs and total revenues are equal, the business organization is said to be “breaking even.” The analysis is based on a set of linear equations for a straight line and the separation of variable and fixed costs.
VARIABLE COST Total variable costs are considered to be those costs that vary as the production volume changes. In a factory, production volume is considered to be the number of units produced, but in a governmental organization with no assembly process, the units produced might refer, for example, to the number of welfare cases processed.
There are a number of costs that vary or change, but if the variation is not due to volume changes, it is not considered to be a variable cost. Examples of variable costs are direct materials and direct labor.
FIXED COST Total fixed costs do not vary as volume levels change within the relevant range. Examples of fixed costs are straight-line depreciation and annual insurance charges. Total variable costs can be viewed as a 45 line and total fixed costs as a straight line. Linearity is an underlying assumption of CVP analysis. Although no one can be certain that costs are linear over the entire range of output or production, this is an assumption of CVP. To help alleviate the limitations of this assumption, it is also assumed that the linear relationships hold only within the relevant range of production. The relevant range is represented by the high and low output points that have been previously reached with past production. CVP analysis is best viewed within the relevant range, that is, within our previous actual experience. Outside of that range, costs may vary in a nonlinear manner. The straight-line equation for total cost is:
Total cost = total fixed cost total variable cost
Total variable cost is calculated by multiplying the cost of a unit, which remains constant on a per-unit basis, by the number of units produced. Therefore the total cost equation could be expanded as:
Total cost = total fixed cost (variable cost per unit number of units)
Total fixed costs do not change.
A final version of the equation is:
Y = a bx
where a is the fixed cost, b is the variable cost per unit, x is the level of activity, and Y is the total cost. Assume that the fixed costs are $5,000, the volume of units produced is 1,000, and the per-unit variable cost is $2. In that case the total cost would be computed as follows:
Y = $5,000 ($2 1,000) Y = $7,000
It can be seen that it is important to separate variable and fixed costs. Another reason it is important to separate these costs is because variable costs are used to determine the contribution margin, and the contribution margin is used to determine the break-even point.
CONTRIBUTION MARGIN The contribution margin is the difference between the per-unit variable cost and the selling price per unit. For example, if the per-unit variable cost is $15 and selling price per unit is $20, then the contribution margin is equal to $5. The contribution margin may provide a $5 contribution toward the reduction of fixed costs or a $5 contribution to profits. If the business is operating at a volume above the break-even point volume (above point F), then the $5 is a contribution (on a per-unit basis) to additional profits. If the business is operating at a volume below the break-even point (below point F), then the $5 provides for a reduction in fixed costs and continues to do so until the break-even point is passed.
Once the contribution margin is determined, it can be used to calculate the break-even point in volume of units or in total sales dollars. When a per-unit contribution margin occurs below a firm’s break-even point, it is a contribution to the reduction of fixed costs. Therefore, it is logical to divide fixed costs by the contribution margin to determine how many units must be produced to reach the break-even point: Assume that the contribution margin is the same as in the previous example, $5. In this example, assume that the total fixed costs are in creased to $8,000. Using the equation, we determine that the break-even point in units:
Now, if we want to determine the break-even point in total sales dollars (total revenue), we could multiply 1600 units by the assumed selling price of $20 and arrive at $32,000. Or we could use another equation to compute the break-even point in total sales directly. In that case, we would first have to compute the contribution margin ratio. This ratio is determined by dividing the contribution margin by selling price.
The financial information required for CVP analysis is for internal use and is usually available only to managers inside the firm; information about variable and fixed costs is not available to the general public. CVP analysis is good as a general guide for one product within the relevant range. If the company has more than one product, then the contribution margins from all products must be averaged together. But, any cost-averaging process reduces the level of accuracy as compared to working with cost data from a single product. Furthermore, some organizations, such as nonprofit organizations, do not incur a significant level of variable costs. In these cases, standard CVP assumptions can lead to misleading results and decisions.
TARGET INCOME SALES VOLUME Amount required to attain a particular income level or target net income. Target Income sales volume is computed as:
For example, assume that unit contribution margin is $15, fixed costs are $15,000, and target income is $15,000. Target income sales volume = ($15,000 $15,000)/$15 = 2000 units. This means that 2000 units need to be sold to make $15,000 profit
BREAK EVEN ANALYSIS DEFINITION Financial analysis that identifies the point at which expenses equal gross revenue for a zero net difference. For example, if a mailing costs $100 and each item generates $5 in revenue, the break-even point is at 20 items sold. A profit will be made on items sold in excess of 20. A loss will result on sales under 20. The break-even point may be analyzed in terms of units, as above, or dollars.
EXPLANATION Branch of Cost-Volume-Profit (CVP) Analysis that determines the break-even point, which is the level of sales where total costs equal total revenue. Thus, zero profit results. Breakeven sales is computed as follows:
Break-even sales in units = Fixed costs/Unit contribution margin.
Break-even sales in dollars = Fixed costs/Contribution margin ratio.
For example, assume:
Fixed costs = $15,000.
Unit contribution margin (selling price – unit variable cost) = $15, and
Contribution margin ratio (unit CM/selling price) = .6
Then, break-even sales in units = $15,000/$15 = 1000 units and break-even sales in dollars = $15,000/.6 = $25,000.
A break-even chart is one in which sales revenue, variable costs, and fixed costs are plotted on the vertical axis while volume is plotted on the horizontal axis. The Break-Even Point is the point at which the total sales revenue line intersects the total cost line. See the sample chart below.
Break-even analysis is used in cost accounting and capital budgeting to evaluate projects or product lines in terms of their volume and profitability relationship. At its simplest, the tool is used as its name suggests: to determine the volume at which a company’s costs will exactly equal its revenues, therefore resulting in net income of zero, or the “break-even” point. Perhaps more useful than this simple determination, however, is the understanding gained through such analysis of the variable and fixed nature of certain costs. Break-even analysis forces the small business owner to research, quantify, and categorize the company’s costs into fixed and variable groups.
“Understanding what it takes to break even is critical to making any business profitable,” Kevin D. Thompson stated in Black Enterprise. “Incorporating accurate and thorough break-even analysis as a routine part of your financial planning will keep you abreast of how your business is really faring. Determining how much business is needed to keep the door open will help improve your cash-flow management and your bottom line.”
The basic formula for break-even analysis is as follows:
BEQ FC /(P-VC)
Where BEQ Break-even quantity
FC Total fixed costs
P Average price per unit, and
VC Variable costs per unit.
Fixed costs include rent, equipment leases, insurance, interest on borrowed funds, and administrative salaries-costs that do not tend to vary based on sales volume. Variable costs, on the other hand, include direct labor, raw materials, sales commissions, and delivery expenses-costs that tend to fluctuate with the level of sales. A key component of break-even analysis is the contribution margin, which can be defined as a product or service’s price (P) minus variable costs (VC) per unit sold. The contribution margin concept is grounded in incremental or marginal analysis; its focus is the extra revenue and costs that will be incurred with the next additional unit.
The first step in determining the level of sales needed for a small business to break even is to compute the contribution margin, by subtracting the variable costs per unit from the selling price. For example, if P is $30 and VC are $20, the contribution margin is $10. The next step is to divide the total annual fixed costs by the contribution margin. For example, a company with FC of $50,000 and a contribution margin of $10 would need to sell 5,000 units to break even. This number can easily be converted to the dollars of revenue the company would need to break even for the year. Simply multiply the break-even point in units by the average selling price per unit. In this case, a BEQ of 5,000 units multiplied by a P of $30 per unit yields break-even revenue of $150,000.
Break-even analysis has numerous potential applications for small businesses. For example, it can help managers assess the effect of changing prices, sales volume, and costs on profits. It can also help small business owners make decisions regarding whether to expand their operations or hire new employees. Break-even analysis would also be useful in the following situation: a small business owner is skeptical of her marketing manager’s projection for sales of 15,000 units of a new product, and wants to know what minimum quantity of units must be sold to avoid losing money, assuming a selling price of $25, fixed costs of $100,000, and variable costs of $15. The equation tells her that these parameters will require a break-even volume of 10,000 units; fewer than that level yields losses, more than that level yields profits. This perspective of analysis may be employed where the analyst is highly confident of the estimates for price and costs, but feels less certain about the assessment of market demand. In this case, the small business owner might be interested in how low sales could fall below the marketing manager’s forecast without causing an embarrassment at year-end reporting time.
Another scenario may involve the question of how to manufacture a product, in terms of the nature of operations and how they will affect fixed costs. Here, a small business owner may have a good handle on the quantity expected, the likely selling price, and the variable costs involved, but be undecided about how to structure the new operation. If the volume is expected to be 10,000 units, at a selling price of $5 and variable costs of $3.50, the break-even equation tells him that fixed costs can be no greater than $15,000. “The bottom line is that, especially for small businesses, the margins for error are much too narrow to make business decisions on gut instinct alone,” Thompson concluded. “Every idea, whether it is the introduction of a new product line, the opening of branch offices, or the hiring of additional staff, must be tested through basic business analysis.”
The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product (TR = TC).[1] A break-even point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product, as opposed to attempting to modify an existing product instead so it can be made lucrative. Break even analysis can also be used to analyze the potential profitability of an expenditure in a sales-based business.
break even point (for output) = fixed cost / contribution per unit
contribution (p.u) = selling price (p.u) – variable cost (p.u)
break even point (for sales) = fixed cost / contribution (pu) * sp (pu)
Margin of Safety Margin of safety represents the strength of the business. It enables a business to know what is the exact amount he/ she has gained or lost and whether they are over or below the break even point.[2]
margin of safety = (current output – breakeven output/current output margin of safety% = current output – breakeven output/current output x 100 If P/V ratio is given then profit/ PV ratio
In unit sales If the product can be sold in a larger quantity than occurs at the break even point, then the firm will make a profit; below this point, the firm will make a loss. Break-even quantity is calculated by:
Total fixed costs / (selling price – average variable costs).
Explanation – in the denominator, “price minus average variable cost” is the variable profit per unit, or contribution margin of each unit that is sold.
This relationship is derived from the profit equation: Profit = Revenues – Costs where Revenues = (selling price * quantity of product) and Costs = (average variable costs * quantity) total fixed costs.
Therefore, Profit = (selling price * quantity) – (average variable costs * quantity total fixed costs).
Solving for Quantity of product at the breakeven point when Profit equals zero, the quantity of product at break even is Total fixed costs / (selling price – average variable costs).
Firms may still decide not to sell low-profit products, for example those not fitting well into their sales mix. Firms may also sell products that lose money – as a loss leader, to offer a complete line of products, etc. But if a product does not break even, or a potential product looks like it clearly will not sell better than the break even point, then the firm will not sell, or will stop selling, that product.
An example:
Assume we are selling a product for £2 each.
Assume that the variable cost associated with producing and selling the product is 60p.
Assume that the fixed cost related to the product (the basic costs that are incurred in operating the business even if no product is produced) is £1000.
In this example, the firm would have to sell (1000 / (2.00 – 0.60) = 715) 715 units to break even.
Total Income (Net profit) = Total expenses (costs)
NI = TC = Fixed cost Variable cost
Selling Price x Quantity = Fixed cost Quantity x Variable cost (cost/unit)
SP x Q = FC Q x VC
Quantity x (SP-V) = Fc
Break Even = FC / (SP − VC)
where FC is Fixed Cost, SP is Selling Price and VC is Variable Cost
Internet research By inserting different prices into the formula, you will obtain a number of break even points, one for each possible price charged. If the firm changes the selling price for its product, from $2 to $2.30, in the example above, then it would have to sell only (1000/(2.3 – 0.6))= 589 units to break even, rather than 715.
To make the results clearer, they can be graphed. To do this, you draw the total cost curve (TC in the diagram) which shows the total cost associated with each possible level of output, the fixed cost curve (FC) which shows the costs that do not vary with output level, and finally the various total revenue lines (R1, R2, and R3) which show the total amount of revenue received at each output level, given the price you will be charging.
The break even points (A,B,C) are the points of intersection between the total cost curve (TC) and a total revenue curve (R1, R2, or R3). The break even quantity at each selling price can be read off the horizontal, axis and the break even price at each selling price can be read off the vertical axis. The total cost, total revenue, and fixed cost curves can each be constructed with simple formulae. For example, the total revenue curve is simply the product of selling price times quantity for each output quantity. The data used in these formulae come either from accounting records or from various estimation techniques such as regression analysis.
Limitations Break-even analysis is only a supply side (i.e. costs only) analysis, as it tells you nothing about what sales are actually likely to be for the product at these various prices.
It assumes that fixed costs (FC) are constant. Although, this is true in the short run, an increase in the scale of production is likely to cause fixed costs to rise.
It assumes average variable costs are constant per unit of output, at least in the range of likely quantities of sales. (i.e. linearity)
It assumes that the quantity of goods produced is equal to the quantity of goods sold (i.e., there is no change in the quantity of goods held in inventory at the beginning of the period and the quantity of goods held in inventory at the end of the period).
In multi-product companies, it assumes that the relative proportions of each product sold and produced are constant (i.e., the sales mix is constant).

Effect Of Technology Push In Indonesia Economics Essay

Abstract: Macroeconomics indicators used to reflect economics condition of a country. Gross Domestic Product (GDP) as well as Inflation Rate and Unemployment Rate are key information for government to establish economics policy. Indonesia as developing country has the potential of natural resources that can support the country’s economy, meanwhile, capital, labor and technology remain take an important influence. The aim of this paper is to analyze each of Macroeconomics Indicators and their interdependencies and further effect of technology push to economic well being. The result shown there are no interdependencies of Macroeconomics Indicators and
BACKGROUND AND RESEARCH QUESTION Indonesia as a developing country has population of more than 237 million people spread across the country which covering area of approximately 1.9 million square miles. Indonesia has a huge potential of natural resources, due its position in tropical area between two continents and two oceans, consisting 17.508 islands and large ocean territory that stores biological wealth. Largest potential of natural resources that support state’s economy are obtain from crude oil, natural gas, tin, copper and gold (Indonesia, 2010).
Even though Indonesia has big potential natural resources, unemployment remain became a big issue. Together with Gross Domestic Product (GP) and inflation rate, unemployment rate are government priority to keep balance. There are two-research question that want to discuss. Firstly, analyze macroeconomics indicators in Indonesia and interdependencies relationship between each indicator and find out parameters that affect economics condition. Secondly, review the effect of technology push against unemployment.
Initial hypothesis are 1.) Economics growth that reflect from GDP might have positive influence to unemployment rate because GDP show economics well-being and if Indonesia has high level of GDP, it suppose to followed by low level unemployment. 2.) Inflation rate represent changes in price level, which means, if inflation rate increase (price level increase), it would decrease purchasing power of consumer and producer. At producer point of view, it would increase variable cost and to keep profit consequently, labor might reduce and the effect is unemployment increase. 3.) Technology push would increase productivity and efficiency, however, the side effect is labors minimized and lead to unemployment. Technology push, if applied in the right place and considering social effect, it would lead productivity increasing meanwhile unemployment growth keep avoid.
LITERATURE REVIEW Some literatures explain concept of unemployment in term of economic aspect. Unemployment is one of the indicators of a country’s economic conditions, in addition to economic growth through Gross Domestic Product (GDP) and Inflation rate. Unemployment, economic growth and inflation rate is seen to have an interdependent relationship. Previously, the following will clarify this economic parameter, both definitions and related economic theories.
Gross Domestic Product (GDP) In his book “Principles of Economics”, Mankiw (2008) simply defines Gross Domestic Product (GDP) as total income of nation. Furthermore, GDP reflect the market value of all both product and service which accepted by customer during the interval in certain period. To describe society’s economic well-being, GDP measure not only total revenue of every part in economic system, but also all expenditure of goods and services. Economic theory state real GDP also reflects from aggregate supply curve.
Aggregate supply curve show total quantity of goods and services that are producers convey to customers (Mankiw, 2008). There are two different conditions of aggregate supply curve extent. Firstly, in the short run, aggregate supply curve slopes upward reflect positive relationship, means increasing of price level tends to increase quantity of goods or services. On the other hand, in the long run, aggregate supply curve turn to vertical, when price level does not affect quantity output. However, labor, capital and natural resources as input and technology used in advance gives effect to quantity output. In long run, aggregate supply meets its natural rate of output that is reflects GDP.
Kitov (2006) found that GDP formulated as total of personal income in a country who already have ability to produce goods or services. Thus, GDP is relating to sum of all income that received from working age population. Thereof, Personal Income Distribution (PID) from labor force is representing GDP of nation. Meanwhile, Levine (2010) analyze GDP have relationship with productivity and labor supply which show growth rate when the economic system are fully employed. In addition, GDP depend on how many labor available and how productive the labor to produce goods or services.
Inflation Rate There are many descriptions about inflation. Inflation simply defines as situation where price level is rising (Mankiw, 2008). Thus, high value of inflation leads to various cost to society as effect, hence, policy maker goal are to keep inflation value at low rate. On the other research, Amir (2003) emphasize that increasing of price level occur continuously, otherwise inflation do not exist. Furthermore, inflation classified based on cause factor i.e. demand-pull inflation, cost-push inflation and imported inflation. Demand-pull inflation occurs when aggregate demand raise significantly whereas aggregate supply stay constant. Therefore, demand is larger than supply that pushes price level higher. Cost-push inflation is situation when production cost increase sharply and encourage producer to reduce supply, which is lead to price increasing. Whereas imported inflation take place if increasing in price level as impact of price of goods are also increase at place origin (Amir, 2003).
Unemployment Unemployment is regular issue of every country at short run of economics system (Amir, 2003). Both developed and developing countries are experiences the same problem, the differences be placed in level of natural rate of unemployment. Mankiw (2008) describe natural rate of unemployment as economics normally experience, however, this condition are still not desirable and remain in the constant value of any country. Natural rate of unemployment reflect that in the long run, unemployment remain exist. Definition of unemployment itself found many points of view. Unemployment straightly define as person who have ability and willingness to work but do not have opportunity (Sharplin and Marby, 1986). Unemployment occurs at imbalance condition between increasing in new labor force and jobs opportunity (Amir, 2003). In addition, Levine (2010) states if there is mismatch linking of skill that require for new job and skill of job seeker, even to fulfills jobs available would be a problem.
Coherence of GDP, Inflation and Unemployment Macroeconomics put GDP, inflation and unemployment as prior to gives clues about economics well-being, and tools for policy maker to control economics activity to keep balance. This macroeconomics parameter have correlation one to another or as a whole measurement system.
From recent review about GDP, Long Run Aggregate Supply (LRAS) might shift due to particular conditions that are changes in labor, capital, natural resources and technology as its factor. Due to aggregate supply shift, aggregate demand also shifts as effect of Central Bank increase money supply to comply rising in aggregate supply. Shifting of LRAS might cause changes in inflation and unemployment. Both inflation and unemployment are two indicators that policy maker would like to pressed at minimum level. Figure 1 illustrates this macroeconomics phenomenon. As result of shifting in new equilibrium point, new price level occurs. For example, if there is significant technological improvement that shifts LRAS to the right, create new quantity of output. New quantity of output represents improvement in GDP value. Theoretically, increasing in output suppose to followed by increasing labor used. In fact, this situation does not exist in the short run, even in long run. The new price level is higher which called inflation.
Mankiw (2008) explained that in the short run, tradeoff between inflation and unemployment occurs. Phillips Curve define phenomena when price level changes. Domino effect happen when policy maker change on of variable that determine price. Blanchflower (2007) on his research found that unemployment depressed economic well being more than inflation due to effect of unemployment more costly than inflation.
Technology versus Unemployment Rate Sharplin and Marby (1986) define technology advancement as not only replacement by machines, but even simple, a better, faster and more efficient way of knowledge. Furthermore, unemployment takes place if technology advancement meets lack of competition in labor and product market. Avoid the application of advance while population increase and necessities of live rising would only degrade standard of living.
In his article, Blum (1970) states there only temporary effect of labor displacement with machine (technology). Tend to replace man power with machine to increase productivity is inevitable. Furthermore, effects of this replacement are temporary because when machine replace labor, it would follow by job replacement. Moreover, machine remain need labor to make it work and create new job, even though with higher requirement. Therefore, unemployment would not increase if labor attempt to adjust labor requirements with the new specification. In fact, it would enhance benefit to society (Blum, 1970).
Blum (1970) defines some method to avoid or minimize unemployment growth when advance technology applied. Programs prevent job loss, namely 1.) Advance notice and consultation, 2.) Attrition, and 3.) Work sharing might helpful to minimize effect even when technology not applied yet. Comprehensively, Blum (1970) also enlighten several program to re-employment, i.e. 1.) Advance Notice of Dismissal, 2.) Employment Exchanges, Placement Services and Special Counseling, 3.) Program for Training and Retraining and 4.) Mobility Program.
MACROECONOMICS INDICATORS IN INDONESIA Describing relationship between economic growth, inflation rate and unemployment rate in Indonesia might be different with developed countries such as America and European countries. Economics policies, system and issues of developing country are depending on government point of view. Demographic, geographic, politics and culture might influence economics aspect in Indonesia.
Economic Growth Indonesia’s economic growth during the last two decades shows fluctuations. International Monetary Fund (IMF) [1] show data of Indonesia monetary parameter starting form 1980. In the early decades (1985 – 1995), fluctuations of Indonesia’s GDP present positive trend with a significant increase of 2.44% (in 1985) to 8.22% (in 1995). However, after monetary crisis in 1998, trend of GDP growth experienced not significant growth even relatively decline. In times of crisis in 1998, Indonesia’s GDP is located on -13.13%. The main cause of the economic crisis is the weakening of Rupiah (Indonesian currency) against U.S. Dollar.
Many industrial sectors support Indonesia’s GDP. Data from Central Board of Statistics [2] represent nine major industrial sectors that affect significantly to Indonesia’s GDP (shown at table 2). The prior industry is Manufacturing Industry that is contributing 26.38% from total GDP (in 2009). Agriculture, Livestock, Forestry and Fishery is the second largest contributor to 15.29%. Trade, Hotels and Restaurants sectors provides 13.37% of GDP portion. Mining and quarrying as substantial sector contribute 10.54% to GDP. Nearly equal, other services (Administration, Government Service, Social Service and Tourism) at 10.22% contribute to GDP. The others industrial sector provide less than 10%, however, in total remain important for GDP growth.
Inflation Rate Bank Indonesia (Indonesian Bank, 2010) states inflation rate measured from Customer Price Index (CPI) and classified from seven spending based on the Classification of individual consumption by purpose (COICOP) [3] . Based on Nation Law, Bank Indonesia has a role to achieve and maintain rupiah exchange rate. Stability of exchange rate consists of two aspects, firstly, stability currency for goods and services that reflect growth rate inflation and on the other hand, stability against currency from other countries that reflect rupiah development against other countries currency.
IMF data show inflation fluctuation since 1985 and even more volatile in the last decade. Economic crisis in 1998 give great effect to economic in Indonesia. Keeping inflation stability became an issue and rupiah exchanges rate cannot repaired to condition before crisis. Before crisis, inflation rate (show at table 1) fluctuated from 4.73% (in 1895) until highest point 9.69% (in 1993). Indonesia experience extremely high inflation during economic crisis, achieves 58.02%, and affects all industrial sectors. In 1999, Indonesian Government attempted economic recovery and succeeds hold down inflation at 20.75%. Since crisis period, inflation becomes volatile at lowest point 3.77% (in 2000) and highest point 13.10% (in 2006). Generally, inflation rate tends to increase in the past two decades and reflect high inflation level [4] .
Unemployment Rate Unemployment in Indonesia (Crayonpedia, 2009) classified based on characteristic into three categories: 1.) Open unemployment, 2.) Half unemployed [5] and 3.) Disguised unemployment [6] . These categories used to construct of unemployment mapping, which made by Central Board of Statistic to represent condition of macroeconomics in Indonesia for past 5 years. Open unemployment is most popular to describe unemployment condition. Open unemployment denote a group or population of labor force who does not have job due to lack of jobs available, people do not have motivation to working and discrepancy of job available with educational background. International Monetary Fund (2010) provides broader data of unemployment rate in Indonesia based on nation definition. Table 1. Figure unemployment fluctuation during 1984 – 2009, with lowest value is 1.5 % (in 1984) and highest value is 11.24% (in 2005). Unemployment trend from 1984 seen rising until 2005, furthermore decline until 2009. According to statement Menteri Tenaga Kerja dan Transmigrasi Republik Indonesia (Ministry of Manpower and Transmigration Republic of Indonesia, 2008) declare that natural rate of unemployment in Indonesia are about 4% – 6%.
Jobs classification comply with Central Board of Statistics data distinguished by nine industrial sectors, which shown at table 3. Agriculture, Livestock, Forestry

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