Understanding the Indonesian Labor Market

Indonesia’s labor market reflects the broader economic and social changes within the country. The nation has experienced consistent job growth, primarily driven by sectors such as manufacturing, agriculture, and services. Urbanization has also played a significant role in shifting employment patterns, with more job opportunities available in cities than in rural areas. However, underemployment and informal employment remain persistent challenges. Underemployment often manifests in the form of workers being employed in positions that do not fully utilize their skills or offer adequate compensation. The informal sector, comprising small businesses and self-employment, still accounts for approximately 58 percent of the workforce. Jobs in this sector typically lack formal contracts, job security, and benefits, making it a critical area for policy intervention and improvement.

Demographics and workforce distribution

Indonesia has a labor force of over 142 million people, making it the largest in Southeast Asia. Further, the population is notably young with a median age of around 30 years. According to Statistics Indonesia (a non-departmental government institute that is responsible for conducting statistical surveys), the country is currently entering a ‘demographic bonus’ era in which the productive population (15-64 years) exceeds the non-productive population.

The peak of this bonus is expected to reach in 2045. As such, this demographic shift presents a unique opportunity for economic growth, provided that the country can effectively harness the potential of its young and dynamic workforce. However, Indonesia must address challenges like job creation, education, healthcare, and economic inequality to fully leverage these opportunities.

The Indonesian government is investing in educational infrastructure, teacher training, and digital learning platforms. Policies to stimulate job growth, such as incentives for foreign investment, support for SMEs, and industrial zone development, are crucial. Enhancing quality healthcare access, through programs like the National Health Insurance (JKN), which aims for universal health coverage, is important.

Workforce distribution

Indonesia’s workforce is largely concentrated in urban areas, with major cities like Jakarta, Surabaya, and Bandung serving as key employment hubs. These cities attract a significant share of the labor force due to the diverse job opportunities available in sectors such as services, finance, and technology. Urbanization has intensified this trend, leading to a concentration of jobs in metropolitan areas, which in turn drives economic growth and modernization. However, a substantial portion of the population remains engaged in rural agriculture, reflecting the dual nature of Indonesia’s economy.

Traditional farming continues to coexist with modern urban industries, playing a crucial role in rural areas by providing livelihoods for millions and contributing to both food security and export revenues.

Education system and workforce readiness

The education system is structured into three main levels:

• Primary;
• Secondary; and
• Tertiary education.

Primary education spans six years, beginning at age seven, and is followed by three years of junior secondary education. Students then progress to senior secondary education, which lasts another three years. Tertiary education is provided by universities, academies, and polytechnics, offering various undergraduate and postgraduate programs.

In recent years, the government has made substantial investments to enhance educational infrastructure and broaden access by working to integrate technology into classrooms through digital learning platforms and improved internet connectivity in remote areas. Despite these efforts, significant challenges remain. Quality disparities between urban and rural schools are pronounced, with urban schools often having better facilities, more qualified teachers, and higher student performance levels. Access to higher education is another critical issue, as many students from rural areas face financial and logistical barriers that prevent them from pursuing tertiary education.

Minimum wage rates and labor costs

Indonesia’s tiered minimum wage system sets a national baseline, allowing regional governments to adjust wages based on local economic conditions to ensure they reflect the cost of living and economic productivity. The minimum wage applies to all workers with less than one year of tenure, after which employees can be paid according to the company’s wage scale.

Businesses are now prohibited from delaying minimum wage payments, except for micro and small enterprises. These smaller businesses are exempt from paying the regional minimum wage but are required to compensate their workers at a rate of at least 50 percent of the average public consumption or 25 percent above the provincial poverty line.

Gender distribution

The Indonesian workforce is largely composed of young individuals, with more than half of the workers aged between 20 and 39. However, older workers also play a significant role, making up about 15 percent of the workforce, and contributing valuable experience and stability. These older employees are essential for mentoring younger workers and ensuring continuity within industries.

Indonesia has witnessed a growing trend in female workforce participation, especially in urban areas and within the service industry. In 2023, women constituted around 38 percent of the labor force, a number that has been on the rise over recent years. Despite this progress, gender inequality persists, particularly in leadership roles where women occupy just about 14 percent of executive positions. Additionally, in fields traditionally dominated by men, such as engineering and technology, women represent less than 20 percent of the workforce. Efforts to combat these disparities include government and organizational initiatives focused on promoting gender equality and empowering women in professional settings.

To support older workers in the evolving job market, there are ongoing initiatives aimed at preventing their marginalization. Reskilling and upskilling programs are being developed to help older employees adapt to technological changes and industry demands. For example, the Pre Employment Card program has been expanded to include training specifically designed for older adults, helping them stay competitive and productive in the workforce.

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