Dissecting the Dichotomy of Formal and Informal Sector Workers
On a bright holiday morning, a stroll around the neighbourhood serves as a refreshing activity. Greeting neighbours busy with their respective tasks reveals a beautiful diversity.
Behind the blend of various ethnicities and languages, there is a diversity of professions. This variety ranges from Civil Servants (ASN) and State-Owned Enterprise (BUMN) employees to private sector workers, entrepreneurs, educators, and traders.
Visually, the social and economic interactions of this community proceed harmoniously without extreme inequality. They enjoy the dynamics of community life. This micro-portrait shows that the patterns of citizens’ livelihoods are not homogenous, serving as tangible proof that every individual has their own way to sustain themselves and their families.
Broadly speaking, these paths are divided into two sectors: the formal sector and the informal sector. However, regardless of the path, the fundamental motivation remains the same: to survive, to improve standards of welfare, and to achieve self-actualisation.
In this achievement process, two essential elements must be present: patience and awareness. Patience provides a pause that allows humans to respond to life’s dynamics wisely and to remain resilient in their choices. Meanwhile, awareness serves as an internal signal to recognise potential competency, passion, and physical health to enable optimal, conscious action. The combination of both proves that the sector in which one works is not a barrier to interacting and growing with dignity. As long as the work is legal and does not violate public order, everyone has the right to a decent livelihood.
However, the fundamental question is: where are patience and awareness formed? Both are born from a supporting ecosystem—a cultural environment that shapes perspectives, actions, and survival strategies. Consequently, how can the state intervene to build such an ecosystem massively and sustainably?
Is the dichotomy between formal and informal still relevant?
An ideal ecosystem is an environment capable of nurturing the authenticity of every individual. In Indonesia, this ambition is fundamentally enshrined in the constitution, which states that the nation’s goal is to educate the life of the nation and advance general welfare.
Through education, the state attempts to build a representative foundational ecosystem. The availability of strong, structured, and directed primary and secondary education is the key to awakening the authenticity of citizens.
When an individual is equipped with the right education, they will possess the self-awareness to measure their own competence, passion, and capability. From there, they are free to choose their path—whether as a teacher, engineer, healthcare professional, entrepreneur, trader, law enforcement officer, or BUMN employee.
Once self-authenticity is formed, the choice to work in the formal or informal sector is no longer a crucial issue. Especially in today’s era of technological disruption, types of jobs emerge and disappear very rapidly. The most important factor is not the job label, but the individual’s readiness to adapt and provide value-added to themselves and their environment.
Tracing its history, the rigid division between the formal and informal sectors is actually merely a statistical tool for measuring economic growth. In 1972, the term “informal sector” was first introduced by British anthropologist Keith Hart while observing employment in Accra, Ghana.
Hart found many communities working and generating income outside official statistical records. The International Labour Organization (ILO) adopted the term that same year after realising that modernisation does not automatically absorb all labour into the formal sector. The informal economy actually grows alongside the formal one (with estimates suggesting it covered 60% of the world’s workforce at the beginning of the 21st century). In 2002, the ILO expanded the concept to the “informal economy” to include flexible employment relationships, both within and outside formal companies.
Where are formal and informal workers heading?
In the past, social prestige and status heavily favoured the formal sector. Working behind an office desk in neat attire seemed to be the sole indicator of success. However, the digital era has drastically changed this paradigm. Today, work can be done anywhere, anytime, and under any conditions. Both sectors inherently possess their own advantages and limitations:
- The Formal Sector
The formal sector has several advantages, including structural certainty, measurable administrative governance, stable monthly salaries, and legal protection and social security (such as BPJS, severance pay, and pensions).
However, the formal sector also has weaknesses, such as being frequently trapped in rigid and hierarchical bureaucracies. Sociologist Max Weber referred to this condition as the “Iron Cage”—a state where humans are trapped in a system of cold rationality and efficiency, which erodes freedom, creativity, and humanity (triggering burnout).
- The Non-formal Sector
The non-formal sector also offers advantages, including agility, flexibility, authenticity, and high social resilience. In Indonesia, the non-formal sector has proven to be a lifesaver and an economic buffer for the nation during multidimensional crises from 1998 through to the COVID-19 pandemic.
Alongside these advantages, weaknesses also shroud the non-formal sector, including a lack of social security, income uncertainty, and the absence of strong legal protection.