Labour Absorption Does Not Yet Reflect Economic Growth
The Indonesian Chamber of Commerce and Industry states that Indonesia’s economic growth has not fully impacted an increase in labour absorption. Although the economy grew by 5.39% annually, the quality of this growth is not strong enough to drive job creation, particularly in labour-intensive sectors.
Deputy Chairman of KADIN for Labour Affairs, Subchan Gatot, described this situation as reflecting the phenomenon of jobless growth. “This means the growth is not fully reflected in the quality of labour absorption,” Subchan said during a hearing with Commission IX of the House of Representatives at Senayan, Jakarta, on Tuesday, 14 April 2026.
According to him, the current labour market faces considerable structural pressures. The unemployment rate still stands at 7.35 million people, while around 57.7% of the workforce is employed in the informal sector with relatively low productivity.
Additionally, about 32% of workers are recorded as not working full-time. This condition indicates that although there is economic activity, the quality and capacity for labour absorption remain limited.
Subchan stated that the weak labour absorption is inseparable from challenges in the industrial sector, particularly in labour-intensive industries. Economic growth, he said, has not been able to optimally drive the expansion of this sector.
On the other hand, he noted a trend of industrial relocation to other countries due to rising production costs and supply chain disruptions. Although nominal wage levels in Indonesia are considered competitive, the overall labour cost structure is less attractive to investors.
One major factor is the high severance obligation. KADIN records that severance in Indonesia can reach up to 19 months’ salary, far higher than Vietnam’s approximately 5 months for 10 years of service. Even, the cost of termination of employment (PHK) in Indonesia is 240% higher than in competing countries.
Subchan said this disparity encourages companies to relocate investments to countries with more efficient cost structures, such as Vietnam and Cambodia.
Additionally, another issue lies in the mismatch between the minimum wage and the real capacity of the industry. Indonesia’s minimum wage is recorded at around US$334.60, higher than Vietnam’s US$204. However, the average payment capacity of the manufacturing sector in Indonesia is only about US$188.31.
In contrast, in Vietnam, the average real wage is above the minimum wage, at around US$342. This situation makes many labour-intensive companies in Indonesia struggle to meet minimum wage requirements.
“Most minimum wages cannot be met by labour-intensive companies,” he said.