Slowing Economy of Indonesia: Rising Youth Unemployment

Having an estimated total population of about 250 million people, Indonesia is the world's fourth-most-populous country. According to the latest data from Statistics Indonesia (BPS), Indonesia’s total workforce numbered 128.3 million in February 2015. Out of this total workforce, 120.85 million people have a job, implying that the country’s unemployment rate stands at 5.81 percent. However, many analysts take these official data with a grain of salt as they do not adequately cover Indonesia’s huge informal sector (which accounts for nearly two-thirds of the country’s economy).

The economy of Indonesia continued its slowing growth trend into the first quarter of 2015 (5.81 percent year-on-year) and in Indonesian media we have read some reports about lay-offs in various industries across the country (including mining, consumer goods industries, manufacturing and the textile industry). With no quick acceleration of economic growth expected for the short-term, job-seekers face tough times in the next few quarters. Meanwhile, recent sharply falling car and motorcycle sales figures show that people’s purchasing power has declined, while falling cement sales point to a drop in property and infrastructure development.

Indonesian Labor Force:

	2011	2012	2013	2014	2015
Labor Force	119,399,375	120,320,000	120,170,000	121,870,000	128,300,000
- Working	111,281,744	113,010,000	112,760,000	114,630,000	120,850,000
- Unemployed	8,117,631	7,310,000	7,410,000	7,240,000	7,450,000

^{Source: Statistics Indonesia}

Both the World Bank and the Organization for Economic Co-operation and Development (OECD) have expressed concern about the high incidence of youth unemployment in Indonesia. In a World Bank report published last year, entitled "East Asia Pacific at Work: Employment, Enterprise and Well-Being", the institution stated that high youth unemployment is one of the threats that is currently being faced by Indonesia and can lead to social turmoil in Southeast Asia’s largest economy. With approximately 20 percent of Indonesia's young men and one third of the young women being unemployed nor go to school, unemployment among the country’s youth aged 15 to 24 is at an unusually high level.

Earlier this year, the OECD published its annual “Economic Survey on Indonesia”. In this report, the institution stated that Indonesia’s demographic bonus is one of the keys to economic success in the years ahead. With 43 percent of the total population being below the age of 25, the country has sufficient human resources, provided that these people can be educated in order to be equipped with the right skills. In that context, the quality of education should be improved markedly through the implementation of structural reforms in the education sector. These reforms include improving teacher training and increasing accountability. If the Indonesian government fails to provide enough job opportunities, then the demographic bonus will turn into a demographic burden. It is estimated that each year two million new job-seekers join Indonesia’s workforce.

Unemployment in Indonesia:

	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015
Unemployment (% of total labor force)	10.3	9.1	8.4	7.9	7.1	6.6	6.1	6.2	5.9	5.8

^{Source: Statistics Indonesia}

Sukamdani said that the situation is alarming as the Indonesian government does not have a blueprint for labour absorption. In tough times the government needs to have a solid plan. Currently, Indonesia is being plagued by the sharp drop in commodity prices causing operational activities of miners to drop. Meanwhile, sharp rupiah depreciation since mid-2013 has burdened industries such as manufacturing and textile by raising costs of imported (raw) materials. In this context companies need to cut costs and one way to cut these costs is by sending workers home.

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