Indonesian Entrepreneurs Holding Back on New Hires, Reasons Revealed

Jakarta, CNBC Indonesia - Manufacturing performance continues to grow in early 2026, yet it is insufficient to drive employment absorption. The business world is instead opting to hold back on recruitment, amid market uncertainties and lingering cost pressures.

Bank Indonesia data indicates that manufacturing activity remains in expansion territory. The Manufacturing Purchasing Managers’ Index (PMI) stood at 52.03% in the first quarter of 2026, up from 51.86% in the previous quarter. However, the employment index remains at 48.76%, in contraction territory, a trend persisting since the second quarter of 2025.

Signs of slowdown are also evident in the Business Activity Survey (SKDU). The Weighted Net Balance (SBT) for business activity was recorded at 10.11% in the first quarter of 2026, down from 10.61% in the prior quarter. In the processing industry sector, while business activity increased, employment usage continued to contract with an SBT of -0.47%.

Apindo General Chair Shinta Widjaja Kamdani explained that this situation reflects growth in production that does not yet fully indicate strong and sustainable demand. According to her, the current increase in industrial activity is largely driven by seasonal factors.

“First and foremost, it must be understood that the SKDU release for the first quarter of 2026 issued by BI is post-factum business performance that is seasonal in nature, as the business performance is influenced by various consumption momenta, from year-end consumption carryover, to Chinese New Year, up to Ramadan and Eid,” Shinta told CNBC Indonesia on Tuesday (21/4/2026).

She emphasised that this seasonal pattern leads companies to only increase production to meet short-term demand spikes, not for long-term expansion. Therefore, the need for additional labour is not a priority.

“Why isn’t this expansion boosting employment absorption? The answer lies in the seasonal factors I mentioned earlier. Generally, business actors do not create jobs merely due to seasonal production needs, which will correct themselves once the momentum ends,” she said.

Shinta stated that business actors currently tend to use medium-term market conditions as the main reference for business decisions, including on labour. Over the past year, market conditions have been deemed insufficiently conducive, both domestically and globally.

“It should be noted that business performance over the past year has put considerable pressure on overall market performance, both domestic and foreign markets,” she said.

Amid these conditions, the business world also faces rises in various cost components, from energy and logistics to financing. This makes companies even more cautious in expanding, including opening new jobs.

“Because market conditions over the past year have not been sufficiently conducive and the outlook for market performance growth in 2026 is not overly optimistic, coupled with considerations of inflation and other business burdens, business actors are generally holding back from expanding employment at present,” said Shinta.

According to her, the strategy adopted by business actors now is more focused on efficiency and optimisation of existing capacity, rather than new labour expansion.

“Now, business actors tend to focus on business cost efficiency and intensification of the use of existing business resources,” she said.

In addition to demand and cost factors, the structure of formal sector employment is also a consideration. The burdens that arise, including risks of costs in the event of termination of employment relations (PHK), make companies increasingly selective in recruiting.

“Especially considering that in Indonesia, the burden of formal sector labour is quite high,” she said.

On the other hand, indicators of business actors’ confidence for expansion also show caution. Shinta explained that the Weighted Net Balance (SBT) in the Business Activity Survey (SKDU) essentially reflects the appetite or desire of the business world for expansion, including in financing.

“This context also applies to the assessment of the SBT for the first quarter of 2026 issued by BI. It should be remembered that SBT is an indicator of the appetite or confidence of business actors to carry out business credit expansion,” she clarified.

Considering the still weak market conditions, high cost pressures, and relatively expensive financing costs, business actors assess that current expansion may not be sustainable in business terms.

In this situation, Apindo believes more concrete policy interventions are needed to encourage the business world to become expansive again. From macroeconomic stabilisation, inflation control, to improving the business climate, these are seen as key factors.

“So the interventions we need from the government at present include stabilising the national macroeconomic conditions to better support business expansion,” said Shinta.

In addition, simplification of regulations and reductions in various business burdens such as energy, logistics, and financing are also deemed important to enhance business actors’ resilience. The government is also expected to expand access to more affordable financing, particularly for labour-intensive sectors with potential to absorb large numbers of workers.

Not only that, government spending is hoped to be more directed towards productive sectors, as well as strengthening connectivity and industrial modernisation. Amid global pressures, trade diversification is also seen as an important strategy to maintain supply stability and strengthen exports.