EmploymentChallenge:Where Didthe JobsGo?Where Didthe JobsGo?IndonesiaFEATURED ARTICLES:OVERVIEW OF INDONESIA’S UNEMPLOYMENTTRENDS AND GROUPS MOST AFFECTED BYJOB JOB INSECURITY. JAN 2026
Maria Amaleenbt Mustafa2024223916Maria Amaleenbt Mustafa2024223916Nur FarrisaAisyah bt Yunos2024253982Nur FarrisaAisyah bt Yunos2024253982Nurul Athirahbt Abdullah2024281182Nurul Athirahbt Abdullah2024281182Khairul Syahmi2024694646Khairul Syahmi2024694646MuhammadZakwan2024257462MuhammadZakwan2024257462TeamMembers
Table ofContents04 1518220824Economic Issue:UnemploymentContry BackgroundFiscal PolicyObjectives of theStudyExamines unemployment as amajor economic issueLocation , Population , Economy &Attractions and Impact onunemployment rateThe use of Fiscal Policy inIndonesiaThis section proposerecommendations to adressunemployment in IndonesiaExplores the main objectives ofthe study and the reasons forselecting Indonesia as thecountry of studyRecommendationObjectives ofSelecting the Country09 ReferencesConclusion
LocationCountries&Neighbouring04Indonesia stretches across three time zones, primarily betweenlatitudes 6°N and 11°S and longitudes 95°E and 141°E. Itsstrategic position places it north of Australia, south of thePhilippines and Malaysia, and east of the Indian Ocean. Thecapital, Jakarta, sits on Java island near the northwest coast.Indonesia shares land borders exclusively with three countries:Malaysia on Borneo (Kalimantan), Papua New Guinea on NewGuinea (Papua), and Timor-Leste on Timor island. These borderstotal around 1,800 km, shaped by colonial histories and islandgeography
Population:As of January 2025, Indonesia's population totaledroughly 289.9 million people, with a slight femalemajority at 50.1%. This marked an increase of 3.66million from the previous year, driven by natural growthexceeding 3.8 million births over deaths. Officialestimates from sources like the World Bank recorded283.5 million in 2024, aligning with census trends.Econometric models forecast Indonesia's populationclimbing to 284.4 million by the end of 2025 and 287million in 2026. Long-term trends suggest it could hit289 million by 2027, reflecting sustained demographicmomentum. Factors like declining fertility rates maygradually temper this rise into the late 2020s.Indonesia's share of world population stands at about3.6%, underscoring its geopolitical weight in SoutheastAsia. Compared to neighbors, it dwarfs Malaysia's 34million while trailing Pakistan and peers in the topranks. Sustained growth positions it for demographicdividends if harnessed through policy.05Indonesia holds the title of the world's fourth most populous nation,with its population surpassing 280 million residents spread acrossthousands of islands. Recent data from early 2025 pegged thefigure at around 289.9 million, fueled by a steady annual growthrate of about 1.28%. Projections indicate continued expansion,reaching approximately 287 million by 2026.Current PopulationGlobal Context
Indonesia is one of Southeast Asia’slargest economies, with tourism andservices playing a crucial role in itsdevelopment. In 2023, tourismcontributed 4.1% of GDP, generatingUSD 14.63 billion and supportingover 12.5 million jobs. The sectordrives growth in accommodation,food services, and transportation,making it a key source of incomeand employment.Indonesia’s NaturalAttractionsUnderemployment, skill mismatches, andrestricted access to formal positions areamong Indonesia's labor market issues,despite the country's consistent 5.0%growth in 2025.These problems hinderinclusive growth and lower householdwellbeing. Another concern is theshrinking middle class, which threatensdomestic consumption and long-termstability. While the government hasintroduced fiscal measures like cancellinga planned Value-added tax (VAT) hike andinvesting in infrastructure, structuralreforms are still needed to ensuresustainable and equitable development.Labor Market ImbalanceEvery year, millions of tourists are drawn toIndonesia by its abundant natural beauty.The distinctive scenery and wildlife of placeslike Bali, Raja Ampat, Mount Bromo, andKomodo Island are well known across theworld. Through ecotourism, hospitality andcultural events, these locations boostregional economy.06EconomyandAtrractionsofIndonesia
SocialImpact on unemployment ratePsychologicalJob loss in Indonesia frequently leads tofinancial instability, especially among lowincome households. According to recentstudies, unemployed individuals are morelikely to experience food insecurity, with25% of affected youth reporting suicidalideation, compared to 10% among theiremployed peers. @ This highlights the deepconnection between economic hardshipand mental health.The unemployed often struggle withmental health problems like depressionand anxiety. Shame has kept mentalillness in Indonesia behind closed doors,with people hesitant to seek treatmentand staving off behavioral health’s toll.Research indicates that prolongedunemployment can result in enduringemotional misery, even afterreemployment. @Unemployment frequently causes tensionin family relationships. Financial insecuritycan cause emotional disengagement,domestic strife, and in certain situations,marriage dissolution. In urban locationswith high living expenses and few socialsupport networks, these consequencesare especially noticeable..@In a land where work is intertwined withidentity and dignity, they may not be ableto move beyond this threshold. A job lostcan signal a loss of worth, especiallyamong men whose role as breadwinner istraditionally seen as central to theiridentity. This confusion can becompounded by scarce retrainingprograms or career advice.Unemployed individuals may alsowithdraw from community life due tofeelings of shame or perceived failure. Ina culture that values industriousness andcontribution, joblessness can erode one’ssense of belonging, weakening socialcohesion and increasing isolation1.FINANCIAL INSTABILITY2. STRAINED FAMILY RELATIONSHIP3. COMMUNITY DISENGAGEMENT1.MENTAL HEALTH CHALLENGE2. IDENTITY CRISIS3. LONG TERM PSYCHOLOGICALEFFECTThe consequences of joblessness are veryoften not limited to the time someonespends unemployed. SSI recipients whoare long-term unemployed may suffer skillatrophy, low confidence and difficultyassimilating back into the labor force.These obstacles add to a cycle ofeconomic vulnerability and socialmarginalization.@07
Indonesia is selected becauseit has a large labour force andfaces ongoing unemploymentchallenges.Indonesia actively usesfiscal policy to addressunemployment.Indonesia represents anemerging economy with stronggovernment intervention ineconomic management.To analyse theunemployment rate inIndonesia.To examine the impact ofecono growth and labourmarket conditions onunemployment in IndonesiaTo evaluate the role of fiscalpolicy in reducingunemployment in Indonesia.010203010203Objective of theStudyObjective ofSelecting theCountry08
UnemploymentCrisis inIndonesiaIndonesia is one of the fastest growingeconomics in Southeast Asia that supported bya large population and a young labor force.However, behind this economics progress lies apersistent issue that continues to challenge thenational’s development which is unemployment.Every year, millions of Indonesians enter thelabor market with hopes of securing stable jobs,yet not all are able to find employment thatmatches their skills, education or expectations.Although Indonesia has shown economicrecovery after the COVID-19 pandemic, jobcreation has not always kept pace withpopulation growth. As a result, unemploymentremains a key economics concern that affectsnot only individuals but also nationaldevelopment.Indonesia's Statistical Office (Badan PusatStatistik, BPS) publishes unemployment andlabor force data twice a year which is inFebruary and August. Let's first look at theofficial unemployment rate. Table 1 shows thatIndonesia's unemployment rate has shown asteady downward trend over the past twodecades, remaining in single digits since 2006.However, the table does show two temporaryupticks in unemployment. Firstly, in 2015, therewas an increase that was primarily driven by aslowdown in economic growth that led tolayoffs and a slower absorption of new entrantsinto the workforce.UnemploymentinIndonesiaUnemploymentinIndonesiaTrends of unemployment rate09
TYPES :UNEMPLOYMENTRATE1.StructuralUnemployment(TheCore Mismatch)Affected Sectors:Manufacturing: Factories in areaslike West Java increasingly usemachines and automation, reducingthe need for low-skilled workers.Mining &Green Economy:Companies that process naturalresources need skilled engineers andtechnicians, butthere are not enoughqualified workers to fillthese roles.The structurally unemployed are people who arelaid off and looking for work because technologyadvances or other structural changes inproduction. This is the main unemploymentproblem in Indonesia. As the economy developsand uses more technology, many jobs now requirenew and specific skills. However, many workers donot have these skills, so companies cannot findsuitable employees even though many people areunemployed. Unemployment is especially highamong vocational school and university graduatesbecause what they learn often does not matchwhat industries need.10
2. Frictional UnemploymentFrictionally unemployed people are inbetween jobs or are students whorecently completed school and arelooking for a job. This form ofunemployment is usually short-lived innature. In Indonesia, this mainly happenswhen people are in the process of lookingfor work, especially new graduates andyoung job seekers. Even when jobvacancies exist, many people remainunemployed for a period because findingsuitable work takes time. This isworsened by limited job information,competition in urban areas, andemployers demanding experience thatfresh graduates do not yet have.Affected Sectors:Youth and New Graduates:Indonesia has a highyouth unemployment rate (ages 15–24 at 16.89%)because many graduates need months, or evenyears,to secure their firstjob after finishingschool or university. Urban Informal and ServiceSectors:In cities, workers often move betweenshort-term or informal jobs (such as retail,delivery, and hospitality), causing frequentperiods of unemployment between jobs.3. Cyclical UnemploymentCyclically unemployed people are laid offdue to a decline in the demand for theirproduct; they are also looking for a job. InIndonesia , this type of unemployment willoccurs when economic activity slows down,causing companies to reduce productionand cut workers. Although Indonesia’seconomy continues to grow at around 5%,it is still affected by global economicconditions. When major trading partnersexperience slowdowns, Indonesianindustries that depend on exports facedeclining orders, leading to layoffs orreduced working hours.Affected Sectors:Export-Oriented Manufacturing:Textile, garment, andfootwear industries experience job losses when demandfrom the United States, Europe, or other global marketsweakens. Factory closures or reduced shifts increaseunemployment, especially in industrial areas like WestJava and Central Java.Small and Medium Enterprises (SMEs): Many IndonesianSMEs rely on export supply chains. When global demandfalls,these businesses struggle to survive and mayreduce their workforce.11
Seasonal unemployment is common in Indonesiabecause a large part of the workforce dependson natural seasons and tourism cycles. Many jobsare only available at certain times of the year,and when the season ends, workers temporarilylose their income and employment. This problemis more serious in rural areas and among informalworkers who do not have job contracts or socialprotection. Because many seasonal workers havelimited skills outside their main occupation, it isdifficult for them to find alternative jobs duringthe off-season, increasing temporaryunemployment.Affected Sectors:Agriculture, Forestry, & Fishing: Farmers and fishers relyheavily on planting, harvesting, and weather conditions.During droughts, heavy rains, or non-harvest periods, manyworkers are unemployed, especially in regions likeLampung, East Java, and Sulawesi.Tourism and Hospitality:In tourist destinations such asBali, Lombok, and Labuan Bajo, employmentincreasesduring holiday seasons but drops sharply during lowseasons or bad weather, causing temporary unemploymentfor hotel staff,tour guides, and informal workers.4. Seasonal Unemployment12
By 2025 and into early 2026, unemployment inIndonesia had become real threat to the country’seconomic future. As Indonesia aims to become a highincome nation, joblessness is quietly weakening thefoundations of growth that reducing spending,shrinking the middle class, damaging young talent andincreasing social tension. Its effects spread throughthe entire economy, touching families, businesses,and even government finances.1.Slow Economy GrowthWhen People Stop Spending, the EconomySlows. Indonesia’s economy dependsheavily on consumer spending. From buyingstreet food to upgrading smartphones,everyday purchases keep businesses alive.But when people lose their jobs, spendingdrops sharply. Unemployed householdsfocus only on basic needs like food andrent. The impact is stores sell less, factoriesreceive fewer orders, and businessesstruggle to survive. Some are forced toclose or lay off even more workers thatcreating a dangerous cycle whereunemployment causes even moreunemployment.Next is the Shrinking of Middle Class. In2025, millions of Indonesians slipped out ofthe middle class and into a “vulnerable” orstruggling group.This matters because the middle class isthe engine of the economy. They spendmore, save more, and pay the most taxes.The impact is with fewer middle-classfamilies, government tax revenue falls. Thatmeans less money for public services likeschools, hospitals, transportation, andinfrastructure slowing long-termdevelopment.2. The Shrinking of Middle ClassUNEMPLOYMENTCRISIS: WHY ITMATTERS TOEVERYONE13
Other than that, The Rise of Informal Work.When formal jobs disappear, people don’tstop working until they adapt. Many turn tostreet vending, ride-hailing, home-basedbusinesses, or daily labor. This is known asthe informal sector. The impact is whileinformal work helps people survive, itcreates new problems. These workers oftendon’t pay income tax, lack health insurance,and have no job security. For thegovernment, this makes the economyharder to manage and workers harder toprotect.Moreover, Youth “Brain Waste”. Around16% of young Indonesians are unemployedwhich is such a troubling number for acountry with a young population. Thedanger isn’t just short-term joblessness.When young people stay unemployed foryears after graduating, their skills fade,confidence drops, and employers becomeless willing to hire them. Instead ofbecoming productive workers who driveinnovation and growth, many young peoplestruggle just to survive. This loss of talentoften called “brain waste” that can slowIndonesia’s progress for decades.Lastly, The rising of Social Tension andCrime. Unemployment doesn’t only affectwallets but it also affects society. Whenpeople feel desperate and left behind, theirfrustration will grows. The impact is whenhigh unemployment is often linked to highercrime rates, more protests, and socialunrest. For foreign investors, this signalsinstability. As a result, companies maychoose to invest in neighboring countrieslike Vietnam or Thailand instead ofIndonesia.3.TheRise ofInformal Work4.Youth “ Brain Waste” 5.The rising of SocialTensionand Crime14
Introduction ofFiscal PolicyFiscal policy is the use of government expenditure and taxes. It is mainly used toreduce short-term ups and downs in the economy and to help the country achieve fullemployment. By changing government spending or taxes, fiscal policy influencesoverall demand in the economy, which helps increase potential output.Moreover, fiscal policy is divided into two types: expansionary fiscal policy, which isusually used to reduce unemployment, and contractionary fiscal policy, which is usedto lower the inflation rate. In Indonesia, the government often uses expansionaryfiscal policy, such as increasing spending or reducing taxes, to combat unemploymentand support economic growth.EXPANSIONARYFISCAL POLICYExpansionary Fiscal Policy is a governmentstrategy used during recession to enhanceeconomic growth and reduce unemploymentas it is designed to increased aggregatedemand and therefore raise Gross DomesticProduct (GDP). It involves increasingaggregate demand by raising governmentspending on goods and services, reducing nettaxes, or using a combination of both. As aresult, expansionary fiscal policy helps expandreal output and increase Gross DomesticProduct (GDP).So, when a government want to enhancetheir economic growth they may use one of theoption or use both. As for Indonesia, thegovernment uses both raising governmentspending and reducing net taxes to boost theireconomic growth and combat unemployment.15
SpendingPolicySpendingPolicy1.Public16Moreover, it is one of the mainmethod or tools used by Indonesiaaimed to increase investment in physicaland social infrastructure includingprograms to build roads, bridges,airports, as well as investment in theeducation and health sectors. Forexample, initiative like the “8+4+5”Economic Policy Package and povertyfocused employment schemes are clearexamples of using public spending tostimulate job growth and supporteconomic recovery.Method’s to Overcome:Unemployment Used byIndonesiaMETHOD1 : PUBLIC SPENDING POLICYPublic spending policy is a corecomponent of government expenditure,which is one of the main tools ofexpansionary fiscal policy. When thegovernment spends more oninfrastructure, education, healthcare,and job programmes, more money flowsinto the economy, increasing overalldemand. This higher demandencourages businesses to expandproduction and hire more workers,thereby reducing unemployment rate ofthe country..
PPoolliicciieess2.Tax12Tax policies are another important tool ofexpansionary fiscal policy. When personalincome taxes are reduced, households willhave more income, which increasesconsumption and the demand for goods andservices. Similarly, lowering corporate taxesor offering tax incentives encouragesbusinesses to invest, expand operations,and hire more workers. These measurescreate a multiplier effect in the economy,leading to higher employment levels.Indonesia also uses tax policies as a toolaim to increase government revenuewithout slowing down economic activity.The government has implemented taxreforms to improve the efficiency of the taxsystem, reduce the tax burden on certainsectors, and encourage better taxcompliance.For example,the government providescorporate tax holidays, which give full orpartial exemptions from corporate incometax for 5 to 20 years to companies inpriority or pioneer industries.Theseincentives aim to attractlargeinvestments, encourage industrial growth,and create more jobs oppurtunity.Second, income tax incentives underArticle 21 are given to workers earningbelow IDR 10 million per month. Thisincreases workers’ net salary which raisestheir disposable income, raises householdpurchasing power, and supportsconsumption among lower-income groups.Higher consumption then encourages firmsto increase production and hire moreworkers. Overall, these tax policies supportboth investment and consumer demand,helping to expand job opportunities andreduce unemployment.METHOD2 :TAX POLICIES17
18OurRecommendations :One main strategy is to strengthen theconnection between education andlabor market needs. The governmenthas put focus on \"link-and-match\"programs that align educationalcurricula with industry demands. Thishelps graduates acquire job-relatedskills and closes the gap between whatschools teach and what employers seek.It also involves improving vocationaland technical training, as well asenhancing labor market informationsystems so job seekers can betteridentify opportunities that fit theirskills. These reforms aim to increaseworkforce capacity andemployability, which is important dueto the large number of new graduatesentering the job market each year.1.Strengthen the Connection betweeneducation and labour market
The Indonesian government has introducedstimulus packages that include paidinternships for recent graduates,\"cash forwork\" infrastructure projects, and temporaryemployment initiatives that create jobs whileboosting domestic demand. | These actionshelp lessen labor surplus and providepractical work experience. However, longterm job creation also needs policies thatdraw in investment, especially in laborintensive sectors like manufacturing,services, tourism and support businesses ofall sizes to increase employment.2. Expand and DiversifyJob CreationAnother key recommendation toreduce unemployment inIndonesia is to expand anddiversify job creation througheconomic policies and targetedprograms.19
20In addition to training and legal reforms,recent government programs have directlyfocused on job creation in specific regionsand sectors. For instance, strategicinitiatives announced in 2025 include theexpansion of village cooperatives (KoperasiDesa Merah Putih) and maritime programssuch as Kampung Nelayan Merah Putih andrevitalized tambak systems. Theseinitiatives are expected to create hundredsof thousands of jobs, especially in ruralcommunities and labor-intensive sectors.These place-based programs show howlocalized development strategies caneffectively address unemployment whilepromoting inclusive growth beyond majorurban areas.3.The Omnibus Law on JobCreation (Undang-Undang CiptaKerja)4.Training and LegalReformsThe Omnibus Law on Job Creation(Undang-Undang Cipta Kerja) inIndonesia is a major legal reform thataims to improve the country’sinvestment climate and boostemployment. It does this by simplifyingand improving a wide range of existingregulations in various sectors, especiallylabor and business licensing. By cuttingbureaucratic obstacles and introducinga unified regulatory framework, the lawaims to make it easier for both domesticand foreign investors to operate andexpand, thereby creating more jobs.Institutions like the World Bank supportthis approach as a way to improvecompetitiveness and stimulate economicgrowth.
21In addition to training and legal reforms, recent government programs have directlyfocused on job creation in specific regions and sectors. For instance, strategicinitiatives announced in 2025 include the expansion of village cooperatives (KoperasiDesa Merah Putih) and maritime programs such as Kampung Nelayan Merah Putih andrevitalized tambak systems. These initiatives are expected to create hundreds ofthousands of jobs, especially in rural communities and labor-intensive sectors. Theseplace-based programs show how localized development strategies can effectivelyaddress unemployment while promoting inclusive growth beyond major urban areas.Summary :In conclusion, addressingunemployment in Indonesia requiresintegrated efforts involving educationindustry alignment, job creation policies,legal reforms, and regional developmentprograms. By improving workforce skills,attracting investment, and supportinglocalized initiatives, Indonesia cancreate sustainable employmentopportunities while promoting inclusiveand balanced economic growth.Together, these integrated efforts caneffectively address unemployment whilepromoting balanced economic growthand improved workforce resilienceacross Indonesia.5. Focused on Job Creation inSpecificRegions and Sectors
22ConclusionIn conclusion, this study has given a clear overview of Indonesia by lookingat its background, the goals of the study, the reasons for focusing onIndonesia, the unemployment problem and how fiscal policy can helpaddress this issue. Indonesia was selected as a case study because it is oneof the largest economies in Southeast Asia. It has a large and diversepopulation, a fast-developing economy and a labor market dealing withboth structural and cyclical unemployment challenges. These factors makeIndonesia a relevant example for understanding unemployment indeveloping economies.
23The discussion on unemployment inIndonesia shows that the issue is not justdue to economic slowdown. It also arisesfrom deeper structural problems, such asmismatched skills between graduates andwhat the labor market needs, unevendevelopment between urban and ruralareas, and a strong informal sector. Youthunemployment and underemploymentworsen the situation, limiting incomesecurity and long-term productivity. Thesechallenges indicate that resolvingunemployment in Indonesia requires morethan short-term solutions and it needssustainable policies.Fiscal policy is an important tool for theIndonesian government to lowerunemployment and boost economic growth. Byincreasing public spending, developinginfrastructure, implementing social assistanceprograms, offering tax incentives, andlaunching targeted job-creation initiatives, thegovernment aims to drive demand, encourageinvestment, and create more job opportunitiesacross different sectors. Programs that focuson rural development, micro, small, andmedium enterprises (MSMEs), and industriesthat require a lot of labor are especiallyimportant for making sure that economicgrowth is inclusive and fairly shared. Overall,the study concludes that while fiscal policy hasbeen significant in reducing unemployment inIndonesia, continuous improvement of policies,effective execution, and alignment withstructural reforms like education and labormarket enhancements are crucial for achievinglasting employment and economic stability.
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