Income Inequality in Indonesia Threatens Social, Economic & Political Stability
The World Bank says income inequality in Indonesia is widening and as a consequence the fruits of Indonesia's economic growth over the past decade have only been enjoyed by the richest 20 percent of Indonesian society, leaving behind the remaining 80 percent of the population (or 200 million people). In its new report titled "Indonesia's Rising Divide" the World Bank states that rising inequality in society can jeopardize social cohesion, as well as political and economic stability over the long term. The report claims that inequality in Indonesia has reached a relatively high level and is climbing faster than in most of its regional peers.
This claim is based on the Gini coefficient. According to the report, Indonesia's Gini coefficient has risen from 30 in the year 2000 to 41 in 2015 (a reading of 0 represents perfect equality, while a reading of 100 represents perfect inequality). Furthermore, the World Bank conducted a survey among Indonesians which signals that most Indonesians consider income distribution in their country “very unequal” or “not equal at all".
Rodrigo Chaves, World Bank country director for Indonesia, says (widening) income inequality is a challenge for Indonesia and needs to be dealt with as countries with more equal wealth distribution tend to grow faster and more stably. Also within Indonesia, this pattern is found. Regions with a higher level of inequality than the national average have 1.6 times more likelihood of experiencing social troubles.
The World Bank report informs that in 2002 the richest 10 percent of Indonesian society consumed the same amount as the 42 percent poorest people. In 2014, the 10 percent richest consumed the same amount as the 54 percent poorest of Indonesian people, hence pointing at rising inequality.
Meanwhile, World Bank Economist Vivi Alatas said a major problem in Indonesia is the large informal sector. Around 54 percent of Indonesian workers are engaged in the informal sector, meaning their salaries are two times lower than a salary in the formal sector (for similar work). Furthermore, there exists a big gap in salary between skilled and unskilled workers. It is estimated that about 46 percent of Indonesian workers have only completed primary school hence not being able to obtain knowledge for higher skilled jobs. Generally, the salary of a skilled worker is three times higher than the salary of an unskilled worker.
The World Bank advises the government of Indonesia to combat the following four drivers of inequality in Indonesia: (1) inequality of opportunity, (2) inequality in the labour market, (3) high wealth concentration and (4) unequal resilience to shocks. These drivers can be battled through implementation of the correct policies, such as improving local service delivery (enhance health, education and family planning programs), strengthening social protection, promoting better jobs as well as skills training opportunities for workers, implementing a fairer taxation system, and use tax revenue to reduce inequality.
Indonesia's Unemployment Statistics:
| 2011 | 2012 | 2013 | 2014 | 2015 | |
| Labor Force | 119,399,375 | 120,320,000 | 120,170,000 | 121,870,000 | 122,380,000 |
| - Working | 111,281,744 | 113,010,000 | 112,760,000 | 114,630,000 | 114,820,000 |
| - Unemployed | 8,117,631 | 7,310,000 | 7,410,000 | 7,240,000 | 7,560,000 |
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | |
| Unemployment (% of labor force) |
10.3 | 9.1 | 8.4 | 7.9 | 7.1 | 6.6 | 6.1 | 6.2 | 5.9 | 6.2 |
Indonesian Poverty and Inequality Statistics:
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | |
| Relative Poverty (% of population) |
16.6 | 15.4 | 14.2 | 13.3 | 12.5 | 11.7 | 11.5 | 11.0 | 11.2 |
| Absolute Poverty (in millions) |
37 | 35 | 33 | 31 | 30 | 29 | 29 | 28 | 29 |
Source: Statistics Indonesia
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