The economy grows, but formal employment shrinks

JAKARTA, KOMPAS.com — Economic growth is often regarded as the primary indicator of development success. However in recent years a number of economists have begun to see changes in this pattern: the economy continues to grow, but the jobs created are no longer as high-quality as before. This phenomenon was highlighted by economist and former Minister of Finance Muhammad Chatib Basri in a public lecture titled Why Development Becomes Harder: The Political Economy of the Possible, which was broadcast on the Harvard Center for International Development’s YouTube channel, cited on Wednesday (4 March 2026).

“Many countries are still growing economically, but people feel increasingly economically insecure,” Chatib said.

According to him, these conditions raise fundamental questions in economic development: why does development feel harder even as the economy continues to grow?

One major explanation is changes in the structure of the labour market. In recent years, economic growth has not generated a large number of formal jobs.

Chatib explained that in earlier periods, especially around a decade ago, economic growth was still accompanied by an increase in formal employment. However, in recent years, that pattern has begun to change.

“Economic growth remains, but the composition of work has shifted from the formal sector to the informal sector,” he said.

This shift is important because formal work typically provides more stable income, social protection, and better opportunities for economic mobility. Meanwhile, informal work tends to have uncertain income and little protection.

This change in the structure of employment has major implications for the middle class.

Chatib highlighted the emergence of a phenomenon often described as the fragile middle class — a middle class that sits above the poverty line but remains vulnerable to shocks. “This group is only one shock away from potentially falling back into poverty,” he said.