Minimal-Sweat Industrialisation
The national economic landscape from 2021 to 2025 presents a sufficiently worrying structural contradiction.
On one hand, the government proudly showcases statistics of investment realisations that consistently exceed annual targets.
On the other hand, this administrative success has evidently failed to transform into inclusive prosperity through the absorption of quality labour.
Indonesia currently exhibits a worrying anomalous symptom, namely jobless growth. The engine of growth is driven by highly capital-intensive capital accumulation, but it is increasingly disconnected from the needs of strengthening the domestic workforce base.
Over the past five years, the graph of investment realisations shows an almost linearly increasing quantitative trend.
Starting from Rp 901.02 trillion in 2021, this achievement continued to surge until it broke a new record of Rp 1,931.2 trillion in 2025.
This growth is formally viewed as a success of regulatory reforms through the Omnibus Law on Job Creation and the simplification of bureaucracy via the Online Single Submission (OSS) system.
However, behind those trillions of rupiah figures, there is a fundamental change in the characteristics of capital entering the country, where investment no longer functions as the main catalyst for creating formal employment on a large scale.
The investment structure in 2025 also records an interesting shift with the dominance of Domestic Investment (PMDN) reaching Rp 1,030.3 trillion or 53.4 percent of total capital, while Foreign Investment (PMA) contributes 46.6 percent.
Unfortunately, the incoming PMA tends to be concentrated on capital-intensive projects with high technology that actually minimises the role of humans.
As a result, there is an imbalance in growth rates, when investment grew 12.7 percent annually in 2025, labour absorption only managed to grow 10.4 percent in the same period.
The centre of gravity of the national economy now relies on aggressive downstreaming policies, especially in the basic metals industry sector, which recorded realisations of Rp 262.0 trillion at the end of 2025.
This massive investment does indeed push GDP figures and exports, but the distribution of its income benefits tends to be elitist.
Modern smelter technology requires specific expert labour and uses more automatic machines than manual labour interventions.
Downstreaming does increase national added value in aggregate. However, it leaves local communities with temporary job opportunities or in supporting service sectors with low wages.
The contradiction between the surge in investment and the slowing of labour absorption can be explained precisely through the Incremental Labour Output Ratio (ILOR) parameter.
Various economic analyses show that Indonesia is experiencing a decline in the social efficiency of every capital invested.
Currently, the national ILOR figure is around 0.388, with aggregate labour elasticity at the level of 0.211.
This low elasticity figure means that every 1 percent economic growth only manages to create 0.211 percent growth in labour absorption.
In comparison, in the 1980s era, Indonesia’s labour elasticity was at the level of 0.4 to 0.5, meaning that economic growth at that time was far more effective in creating jobs.