Demanding Decent Work from Economic Growth

Economic growth does not always improve the labour market at the same pace. Output can rise through increased capital and productivity while the expansion of employment stalls.

The focus here is primarily on decent jobs. Growth should therefore be assessed by its ability to widen access to work, raise real incomes and protect workers.

Statistics Indonesia (BPS) data released on 5 November 2026 warrant scrutiny in assessing the extent to which economic growth has improved access to decent work and workers’ welfare. Indonesia’s economy grew by 5.47 per cent year on year in the third quarter of 2026.

The open unemployment rate fell to 4.75 per cent in August 2026, from 4.85 per cent a year earlier. The number of employed people rose by 1.443 million to 147.986 million. At the same time, however, labour-force participation declined, underemployment increased and the share of formal employment edged down. This combination calls for an assessment that goes beyond celebrating an increase in the number of workers.

More people employed, but access has not widened

The working-age population grew by 2.744 million by August 2026, almost twice the increase in employment (BPS, 2026). As a result, the employment-to-working-age-population ratio fell from about 67.17 per cent in August 2025 to 66.99 per cent in August 2026.

This shows that economic activity over the past year absorbed more workers in absolute terms, but the proportion of working-age people with jobs actually declined. The increase in employment still exceeded the growth in the labour force, which was 1.366 million. The problem lies instead in the labour-force participation rate, which fell from 70.59 per cent to 70.33 per cent.

Arithmetically, the employment-to-working-age-population ratio is determined by labour-force participation and the proportion of the labour force in work. Lower unemployment improves the second component, while falling participation weighs on the first.

The result is that improved hiring among those in the labour force has not been accompanied by wider participation among working-age people. The decline in participation does not, by itself, prove that jobseekers have given up. Education, caring responsibilities, health and the age structure may all have an influence.

The Government should disentangle these factors before deciding how to respond. But celebrating lower unemployment without examining participation risks treating an improvement in one indicator as an improvement in the labour market as a whole—let alone as evidence of high-quality economic growth.

Demographic dividend and the duty to prepare

The need for jobs should not come as a demographic surprise. In 2017, the National Development Planning Agency (Bappenas) stressed the importance of improving skills and expanding employment to turn the demographic dividend into an economic dividend.

The launch of Indonesia’s 2015–2045 Population Projection in 2018 strengthened the basis for such planning. The Government had information about the direction of demographic change well before the Covid-19 pandemic. A demographic dividend can drive economic growth when the working-age population increases relative to the dependent population.

That opportunity will yield economic benefits only if workers are absorbed into productive activity and earn decent incomes. A growing potential labour supply without stronger demand can leave people short of work and limit the development of skills through workplace experience.

The pandemic undoubtedly disrupted economic activity, but the need to absorb generations entering working age was already known. The slowdown in economic activity during the pandemic also delayed the absorption of new labour-market entrants.

The critical question is whether population projections genuinely informed investment priorities, education capacity and economic development, or merely served as background to the development narrative. One year of data is not enough to conclude that the demographic dividend has been squandered.

The working-age population in labour statistics also includes people aged 15 and over, unlike the 15–64 age group used in demographic analysis. Nevertheless, stagnation in the employment ratio is reason to reconsider the readiness of policies across successive governments, particularly on labour demand, which is shaped by investment in labour-intensive sectors.

Preparedness should be judged by the productive opportunities available when people enter the labour market. Planning needs to estimate job requirements by region and education level, then match them with business capacity plans.

Targets must also take account of people who continue their education or have caring responsibilities. Pushing everyone into work immediately, regardless of their choices and constraints, could undermine the development of a skilled workforce.

The quality of employment remains constrained

The issue is not limited to access to jobs. BPS data also show that the number of underemployed people increased by 1.244 million to 12.844 million in August 2026.

They work fewer than 35 hours a week and are seeking, or willing to accept, additional work. The underemployment rate rose from 7.91 per cent to 8.68 per cent over the same period. This indicates that people who have found work are not working to their full productive potential.

Economically, a shortfall in working hours represents underused labour capacity. It may result from weak business demand, seasonal activity or barriers to obtaining full-time work. The diagnosis determines the response: a shortage of orders calls for market expansion, while a skills mismatch requires targeted training. The two problems cannot be addressed with the same remedy.

The share of full-time workers did rise, from 67.32 per cent to 67.47 per cent, but the increase in underemployment points to an uneven improvement. Working hours also do not measure whether incomes are adequate. Assessments should examine real hourly earnings to distinguish better welfare from more hours of low-paid work.

The number of formal workers rose by about 410,000, but their share fell from 42.20 per cent to 42.07 per cent. Meanwhile, informal workers increased by about 1.03 million to 85.73 million. Based on rounded figures, around seven-tenths of the net increase in employment came from informal activity. The rise in employment has not materially shifted the structure of jobs.

In the context of structural transformation, moving workers into higher-productivity jobs can increase aggregate incomes. But an increase in low-productivity employment limits the benefits of that transition.

Policy should therefore distinguish productivity gains within sectors from changes in the composition of employment between sectors. Raising productivity without opening access to available workers may improve average figures while concentrating the benefits among a limited group.

Informal work is not, on its own, proof of low welfare. BPS classifications based on employment status do not directly describe employment contracts or social security coverage. Nevertheless, the prevalence of informal work requires productivity and protection policies that reach self-employed workers, not just those in formal employer–employee relationships.

In other words, the data above do not prove that economic growth has been driven by capital-intensive activity. The measurement periods also differ: growth figures cover the third quarter, while employment data refer to August. The conclusion is that stronger economic activity, as reflected in growth, is not sufficient evidence that access to jobs and their quality have improved across Indonesia.

Four policy corrections

First, the Government should increase fiscal and investment support that promotes the creation of decent jobs. Fiscal and investment authorities, together with local governments, should require reporting on net additional jobs, incomes and protections for workers benefiting from support.

Assessments should calculate the fiscal cost per additional job and consider whether those jobs would have been created without incentives. Expensive support that produces no tangible results in decent job creation should be redirected.

Second, priority should be given to demand for productive activities with the potential to absorb workers. Agriculture employs 28.20 per cent of workers, making agricultural processing and supporting services in rural areas worthy of attention.

The central and local governments, particularly agencies working with businesses, should link financing to purchase contracts, compliance with standards and reliable payment. Results should be measured by sustained additional jobs, fewer people working limited hours and higher hourly incomes.

Third, training funding should be turned into funding for transitions into work. Employment agencies should develop training programmes with companies, based on verifiable skills requirements.

Part of providers’ payments could be linked to job placement and retention, with safeguards to ensure vulnerable participants are not excluded. Outcomes should be tracked three to six months after programmes end, covering employment, earnings and skills matching. This would also ensure that training aligns with the skills required by businesses and industry.

Fourth, wider labour-force participation should be paired with income protection. The gap between women’s and men’s participation rates—56.37 per cent and 84.16 per cent respectively—calls for an assessment of barriers related to care and access to work.

The central and local governments could pilot affordable care services, while employment agencies and BPJS Ketenagakerjaan, Indonesia’s employment social security agency, strengthen protection and return-to-work support. Outcomes should include participation, active enrolment, time taken to return to work and income recovery.

Creating decent jobs should be a central objective of national economic policy, on a par with economic growth. The Government should direct development spending and investment incentives towards activities that can employ large numbers of people while raising their productivity.

For example, agricultural processing and the development of domestic suppliers could extend the benefits of investment to small businesses and regions. Training policy should support the development of these sectors, while social protection helps workers manage the risk of losing income during job transitions.

Demographic change has been projected for many years. The Government now needs to show how budget and investment decisions are expanding job opportunities for people entering the labour market.

Success should be reflected in the proportion of working-age people in employment, a reduction in underemployment, and improvements in real incomes and worker protection. These measures would allow the Government to assess whether economic growth is delivering the benefits promised by the demographic dividend.