Unemployment and the Labour Force in Indonesia

Recent Historical Context

During the course of Suharto's New Order, economic development added many new jobs to the Indonesian economy, thus pushing down the nation's unemployment rate. The industry and services sectors in particular experienced major increases in their employment shares of national employment, at the expense of the agriculture sector; whereas in the 1980s around 55 percent of Indonesia's working population was concentrated in the agricultural sector, this figure has declined to below 30 percent.

However, the Asian Financial Crisis that erupted in the late 1990s temporarily reversed this positive development and caused Indonesia's unemployment rate to peak at slightly over 20 percent, with underemployment (which refers to the situation where individuals are employed but their jobs do not fully utilize their skills, education, availability, or earning potential, including part-timers who would actually prefer to work full-time) rising equally rapidly.

Meanwhile, many people who lost their jobs in urban areas during the crisis joined the already large informal sector in the rural areas, where traditional safety nets and informal agricultural work provide some buffer against economic hardship.

Something similar occurred during the COVID-19 crisis in 2020-2021, when economic activity was heavily curtailed by government policy. However, the impact on unemployment seemed to be less intense than during the Asian Financial Crisis. Indonesia's unemployment rate peaked at only 7.1 percent in August 2020 during the COVID-19 crisis.

Although Indonesia has been experiencing robust macroeconomic growth after fully recovering from the crisis in the late 1990s and from the COVID-19 crisis, the informal sector - both in the rural and urban areas - continues to play an exceptionally large role in the Indonesian economy. While it is difficult to pinpoint the exact number, it is estimated that between 55 and 65 percent of employment in Indonesia is informal. Around 80 percent of this informal employment is currently concentrated in the rural areas, particularly in agriculture and the retail/trade sector.

The Unemployment Rate of Indonesia

Indonesia's Statistical Office (Badan Pusat Statistik, BPS) publishes (un)employment and labour force data twice a year (in February and August). Let's first take a look at the official unemployment rate.

Table 1 shows that Indonesia's unemployment rate has shown a steady downward trend over the past two decades, remaining in single digits since 2006. However, the table does show two temporary upticks in unemployment. Firstly, in 2015, there was an increase that was primarily driven by a slowdown in economic growth that led to layoffs and a slower absorption of new entrants into the workforce.

Table 1; Relative Unemployment Rate Indonesia:

	2020	2021	2022	2023	2024	2025	2026
Unemployment Rate (% of total labor force)	7.07	6.49	5.86	5.32	4.91	4.76	n/a

	2013	2014	2015	2016	2017	2018	2019
Unemployment Rate (% of total labor force)	6.17	5.94	6.18	5.61	5.50	5.30	5.23

	2006	2007	2008	2009	2010	2011	2012
Unemployment Rate (% of total labor force)	10.3	9.1	8.4	7.9	7.1	6.6	6.1

^{Source: Badan Pusat Statistik (BPS)}

Secondly, as mentioned above, the COVID-19 crisis in 2020-2021 pushed the national unemployment rate from 5.23 percent of Indonesia's workforce in 2019 to 7.07 percent in 2020. Fortunately, the recovery was relatively quick. By the end of 2023, the rate was back at the pre-COVID-19-crisis level.

It is important to take a closer look at the methodology BPS uses to calculate the unemployment rate. BPS generally follows the guidelines set by the International Labour Organization (ILO) by considering any individual aged 15 years and over as ‘unemployed’ if they meet the following criteria during the survey week:

• The person did not work at all for pay or profit during the survey week;
• The person took specific steps to find a job during the four weeks preceding the survey week (for example: contacting employers, registering at employment agencies, applying for jobs, and looking at job advertisements);
• The person is ready and willing to start work if offered a job during the survey week.

The concern is that there is room for underestimation of unemployment. For example, the requirement of ‘actively seeking work during the four weeks before the survey' might exclude the group of discouraged workers who have stopped looking for jobs as they believe there are no suitable opportunities available. In the BPS statistics, this group is not regarded as unemployed. However, this group of discouraged workers could, in fact, be quite large in Indonesia.

Meanwhile, the survey week only provides a snapshot in time. So, someone who was actively looking for work in the week after the survey (or who was looking for work in the past year but not in the immediate four weeks leading up to the survey) would not be counted as unemployed in that specific survey.

Secondly, the huge informal sector of Indonesia and the issue of underemployment also distort the picture. Informal sector workers are included in the official data of BPS. However, the definition of "working" is quite broad. So, under the employed category we find individuals who work very few hours, with very low pay, or who work in precarious conditions in the informal sector, even if they are seeking more or better work. This underemployment (referring to those who work less than 35 hours per week and want more) is a serious issue in Indonesia and represents a form of hidden unemployment that the headline rate does not fully reflect.

Lastly, we have to emphasize that Indonesia is a massive archipelago (home to more than 285 million people), with many areas being remote. Consequently, data collection (in particular, large-scale, national, surveys) is always a very challenging undertaking, and does not necessarily capture the employment status of all respondents accurately.

So, the question is whether BPS might understate the actual unemployment situation in Indonesia. If the issue of unemployment is worse than government data show, then this carries substantial risks as unemployment creates fertile ground for social tensions by causing economic hardship, undermining social well-being, potentially increasing crime and disorder, and destabilizing the political landscape (particularly if people start feeling the government is trying to hide the issue).

Indonesia's Workforce

With around 285 million people, Indonesia is the fourth most populous country in the world (after China, India, and the United States). Moreover, the country still has a young population with a median age of around 30 years, while 75-80 percent of the population is below 50 years. Combined, these features imply that Indonesia has a very large workforce (or labour force); one that will further expand in the foreseeable future (amid the expanding Indonesian population), and therefore it is critical that enough jobs are available to the couple of million jobseekers who enter the workforce each year; youth unemployment (among the freshly graduated) in particular is a cause for concern.

Table 2 shows that nearly 217 million Indonesians are aged above 15 years in 2025. This is called the 'working age' group. It refers to the segment of the population that is typically considered economically active or capable of being economically active. This group is crucial for a country's economic productivity, as it represents the potential labor force.

However, not all people in this working age group can actually perform work. For example, a small part of the population is physically or mentally disabled. A larger part of the population simply decides not to work. The latter mostly involves people who want to take care of the household and people who choose to pursue education. In 2025, nearly 64 million Indonesians -despite being aged over 15 years- were unwilling (or unable) to be part of the workforce.

Meanwhile, the labour force of Indonesia numbered slightly over 153 million in 2025. This labour force (workforce) refers to the total number of people who are either employed or actively looking for work (unemployed).

Table 2; Indonesia's Labor Force and Employment Statistics (individuals):

	2022	2023	2024	2025¹
Population Aged Above 15	209,420,383	212,587,441	215,371,168	216,785,997
Labour Force	143,722,644	147,707,452	152,107,603	153,049,487
- Working	135,296,713	139,852,377	144,642,004	145,771,180
- Unemployed	8,425,931	7,855,075	7,465,599	7,278,307
People in the Working Age But Not in the Labor Force	65,697,739	64,879,989	63,263,565	63,736,510
- Pursuing Education	15,609,539	15,796,562	15,774,285	16,774,328
- Taking Care of Household	41,249,965	40,227,623	39,270,891	38,286,816
- Others	8,838,235	8,855,804	8,218,389	8,675,366

^{¹ data from February 2025}

[Table 2 Continued]:

	2018	2019	2020	2021
Population Aged Above 15	198,126,553	201,185,014	203,972,460	206,708,299
Labor Force	133,355,571	135,859,695	138,221,938	140,152,575
- Working	126,282,186	128,755,271	128,454,184	131,050,523
- Unemployed	7,073,385	7,104,424	9,767,754	9,102,052
People in the Working Age But Not in the Labor Force	64,770,982	65,325,319	65,750,522	66,555,724
- Pursuing Education	16,524,382	15,943,345	15,352,639	14,644,442
- Taking Care of Household	40,382,209	40,949,704	40,960,652	40,577,943
- Others	7,864,391	8,432,270	9,437,231	11,333,339

[Table 2 Continued]:

	1986	1990	2000	2010
Population Aged Above 15	101,156,121	113,087,806	141,170,805	172,070,339
Labor Force	67,202,063	75,016,338	95,650,961	116,527,546
- Working	65,384,391	73,104,538	89,837,730	108,207,767
- Unemployed	1,817,672	1,911,800	5,813,231	8,319,779
People in the Working Age But Not in the Labor Force	33,954,058	38,071,468	45,519,844	55,542,793
- Pursuing Education	9,147,830	10,140,224	10,763,473	14,011,778
- Taking Care of Household	17,275,478	19,646,090	25,275,187	32,971,456
- Others	7,530,750	8,285,154	9,481,184	8,559,559

^{Source: Badan Pusat Statistik (BPS)}

Hidden Employment in Indonesia

As mentioned above, there is concern about the accuracy of Indonesia's official unemployment statistics. The concern is that there exists a high degree of hidden unemployment, perhaps as high as 15 million people, implying the country’s true unemployment rate might be as high as 14 percent (of the labour force), almost three times the official figure.

To delve a bit deeper into this matter, we need to look at the informal sector and underemployment.

Informal Sector of Indonesia

The informal sector is the part of the economy that operates outside the formal frameworks of government regulation, taxation, and legal protection. It is essentially the unregulated and untaxed segment of economic activity. In the case of Indonesia, the informal sector is very large. In fact, much larger than its formal counterpart which poses all sorts of challenges for social and economic development.

According to data from the Indonesian Chamber of Commerce and Industry (Kadin Indonesia), released in 2023, a whopping total of 99 percent of all business ventures in Indonesia involve informal businesses. In absolute numbers, this was 66 million units of micro, small and medium-sized enterprises (MSMEs). They contributed an estimated 61 percent to Indonesian gross domestic product (GDP), and delivered employment opportunities for around 117 million workers (which is equivalent to 97 percent of the total labor force in Indonesia).

This large informal sector can also mask underemployment and precarious work conditions. Many in the informal sector (either workers or micro business owners) may be working out of necessity with low pay and job security.

Based on data from BPS, 87.3 percent of workers active in the agriculture sector of Indonesia were informal sector workers in 2024. So, one can certainly argue that agriculture, which contributes heavily (roughly 12-13 percent) to Indonesian GDP, is largely an informal affair, with a large majority of Indonesian farmers being smallholders, often operating on less than one hectare of land (these are typically family-owned and family-run using traditional cultivation methods).

Meanwhile, 46.4 percent of workers active in all other (non-agriculture) sectors were informal sector workers in 2024. While this is not as impressive as in the agricultural sector, it is still a huge number that carries consequences, both for informal business-owners and informal sector workers.

Overall, nearly 60 percent of all of those who are employed in Indonesia are informal sector workers (see table 3). Moreover, the Indonesian government has serious trouble to reduce the size of this huge informal sector. In fact, it is bigger today than before the COVID-19 crisis in 2020-2021. Typically, during economic crises, the formal sector shrinks and thus people try to seek a livelihood in the informal sector. This explains the big jump between 2019 and 2020 that is shown in table 3.

Table 3; Distribution of Formal and Informal Sector Workers in Indonesia:

	2019	2020	2021	2022	2023	2024	2025
Formal Sector Workers (% of all employed people)	44.12	39.53	40.55	40.69	40.89	42.05	40.60
Informal Sector Workers (% of all employed people)	55.88	60.47	59.45	59.31	59.11	57.95	59.40

^{Source: Badan Pusat Statistik (BPS)}

Being active in the shadow economy or informal economy is not without risks, both for the entrepreneur and worker as there is a lack of formal recognition, regulation, and protection.

For the informal business owner, there is often no legal standing if problems occur (such as a client who does not pay), while this owner also always faces the threat of being discovered, fined or shut down by the authorities (this particularly applies to those who are engaged in illegal activities). This high degree of insecurity actually discourages business owners to invest in long-term business plans (avoiding costly equipment, technology, and employee training), which subsequently curbs room for business expansion.

Moreover, without legal registration, it becomes hard to own assets (equipment and property) and have access to credit (or a bank account), thereby curbing room for business growth. In fact, often the business owner’s personal and business finances are intertwined, making the entrepreneur's personal assets particularly vulnerable to business failures (or penalties).

Meanwhile, informal business ventures often can’t join larger supply chains, secure government contracts, or export because these activities (typically) require formal registration and compliance. Also, building a long-term brand, customer loyalty, or a professional reputation is hard, instead relying heavily on word-of-mouth within a narrow geographical scope (although social media platforms have made it possible for informal businesses to promote their products or services to a wider audience).

For workers active in the shadow economy (or informal economy), there are also plenty of risks. There is limited (or no) social security as informal workers typically lack access to pensions, health insurance, unemployment benefits, and maternity/ paternity leave. This makes the workers highly vulnerable to illness, injury, old age, and economic shocks. The workers also rarely receive paid holidays, sick leave, or annual leave, meaning any time off work directly impacts their income. And, if a job ends, informal workers usually have no legal right to severance or notice.

Furthermore, working conditions for informal sector workers are often miserable or even dangerous as health and safety standards usually do not apply. This can lead to higher rates of accidents and work-related illnesses. Moreover, workers may face excessively long hours, irregular shifts, and no limits on working times, while at the same time their wages are generally lower (and more unstable) than in the formal sector, making it difficult to plan finances or escape poverty.

Lack of legal rights and recourse means that these informal workers are usually not covered by any minimum wage laws, fair dismissal procedures, or protection against discrimination or harassment. This offers room for employers to exploit an informal sector worker through an unfair wage, arbitrary dismissal, or abusive conditions, as the worker has no legal leverage.

Another negative matter is that informal sector workers can often not gain a lot of skills or knowledge (thereby improving their productivity) as informal jobs rarely offer formal training or skill development opportunities, limiting workers' ability to improve their human capital and move into higher-paying or more stable jobs. This means that career progression is often limited, trapping individuals in low-skill, low-wage work for the rest of their lives.

If the Indonesian were to decide to combat the shadow economy (or informal sector) too aggressively, then it could lead to a sharp increase in mass unemployment and poverty as the informal sector employs a vast majority of the Indonesian workforce. The majority of Indonesians, particularly those with low skills or with limited access to formal employment, rely on a range of informal activities, such as street vending, small home-based businesses or casual labor for their daily income. Therefore, strict enforcement, like forced formalization, heavy taxation or closures, would instantly strip millions of their livelihoods.

So what are the consequences of (too) aggressive government action to formalize Indonesian society?

• It is bound to increase poverty. With widespread job losses in the informal sector, poverty rates would skyrocket. Considering many informal workers already live in near-poverty, even a small disruption can push them into full poverty.
  
  
• It could trigger social unrest and jeopardize political stability as people who depend on the informal economy for survival are likely to react strongly to perceived unfair or oppressive enforcement. This could lead to protests, demonstrations, and even riots, destabilizing communities and potentially escalating into broader social unrest.
  
  
• It could undermine social fabric and erode trust in the government. If law enforcement is seen as targeting the most vulnerable and disrupting their ability to earn a living, then it would severely erode public trust in the government and its institutions, including police and tax authorities. Meanwhile, it could also give a boost to corruption because overly strict and unfeasible laws can make people seek informal ways to circumvent regulations and officials may very well be tempted to extract bribes in exchange for leniency.
  
  
• There is bound to be reduced access to affordable goods and services around the country, triggering inflation as the informal sector typically provided affordable goods and services to society. Forcing formalization could lead to higher operating costs for businesses, which would then be passed on to consumers, making essential goods and services less accessible to those who need them most. Meanwhile, it could mean that many unique local products and services currently offered by the informal vendors might be lost.
  
  
• The formal sector in Indonesia may not have the capacity to absorb the millions of workers who would be displaced from the highly formalized informal sector. This would exacerbate unemployment rather than solve it. Many informal workers also lack the skills, education, or capital to transition easily into the formal sector. And, the formal sector does not have enough manpower to enforce full formalization. For example, Indonesia has relatively few tax officials (estimated at around 42,000 at the moment). However, with more than 215 million Indonesians being older than 15 years, this would be too much to handle for these tax officers.

So, while the Indonesian government certainly has a long-term target of formalizing the economy, the persistence of the informal sector is a complex issue that is driven by the combination of historical context, the practical challenges of governance in a developing economy, and policies that, while not explicitly promoting informality, may inadvertently create incentives or conditions for it to thrive.

Underemployment and Part-Time Employment -  Signs of Hidden Unemployment?

Underemployment refers to the situation where individuals are employed, but their jobs do not fully utilize their skills, education, availability, or earning potential. It is a form of labour underutilization. The BPS data inform valuable information about time-related underemployment, meaning people work fewer hours than desired. It includes a large group of part-time workers who want to work full-time, but cannot find full-time positions.

BPS defines a full-time worker as someone who works “at least 35 hours per week”. All that work less than 35 hours per week are considered part-time workers. This includes two categories: (1) those who deliberately work part-time (for example, a housewife or student as they have other commitments), and (2) above-mentioned time-related underemployment.

Considering nearly 34 percent of those who are employed in Indonesia are part-time workers (see table 4), we assume this involves quite some underemployment. Table 5 shows that out of every 100 people who work, nearly 26 are part-time workers.

Table 4; Full-Time Versus Part-Time Employment in Indonesia:

	February 2023	February 2024	February 2025
Full-Time	66.48%	65.60%	66.19%
Part-Time	33.52%	34.40%	33.81%

^{Source: Badan Pusat Statistik (BPS)}

Table 5; Part-Time Employment in Indonesia (% of Labour Force):

	February 2023	February 2024	February 2025
People Working Part-Time	26.6	25.9	25.8
- Men	19.3	19.0	18.5
- Women	37.9	36.5	36.7

^{Source: Badan Pusat Statistik (BPS)}

BPS also presents data regarding underemployment (namely those who currently work less than 35 hours per week and are searching, or at least willing, to work more). BPS notes that 8 percent of the labour force is currently being underemployed. It means that out of every 100 people who work in Indonesia, eight are being underemployed. When divided by sex, the numbers are not that different (which is in stark contrast to the part-time statistics in table 5).

Table 6; Underemployment in Indonesia (% of Labour Force):

	February 2023	February 2024	February 2025
People Underemployed	6.91	8.52	8.00
- Men	7.16	9.19	8.36
- Women	6.53	7.50	7.47

^{Source: Badan Pusat Statistik (BPS)}

[this section is under construction]

Table 7; Indonesia's Labor Force Participation Rate by Sex/Gender:

	2019	2020	2021	2022	2023	2024	2025
Male	83.2	82.4	82.3	83.9	84.3	84.7	84.3
Female	51.8	53.1	53.3	53.4	54.5	56.4	56.7

^{Source: Badan Pusat Statistik (BPS)}

When we take a look at urban versus rural unemployment in Indonesia, then we can see that unemployment is significantly higher in the urban areas of the country compared to the rural areas. It is also interesting to point out that the gap between urban and rural unemployment widened over the past four years because rural unemployment has declined more rapidly than urban unemployment. The explanation for this is that many rural people move to the cities in search of employment opportunities.

Indonesia is experiencing a rapid process of urbanization. Currently more than half of Indonesia's total population resides in urban areas. On the one hand, this is a positive development because urbanization and industrialization are necessary to grow into the ranks of a middle income country. On the other hand, this process needs to be accompanied by sufficient job creation in the cities. Hence, (domestic and foreign) investment needs to rise in existing or new urban areas. Thus, the Indonesian government has to make the investment climate more attractive to attract investment.

Important issues (which are the responsibility of the government) are the strengthening of Indonesia's human capital (human capital refers to the knowledge, experience and skills of an employee). The quality of local human capital can be improved through improved education and healthcare. Currently many companies complain that Indonesia's human capital is too weak. This means that investors prefer to invest in another nation (where the quality of the workers are higher), hence leading to missed opportunities in terms of job creation for Indonesia.

Urban and Rural Unemployment in Indonesia:

	2014	2015	2016	2017
Total Unemployment (% of total labor force)	5.9	6.2	5.6	5.5
- Urban Unemployment (% of total urban labor force)	7.1	7.3	6.6	6.8
- Rural Unemployment (% of total rural labor force)	4.8	4.9	4.5	4.0

^{Source: Badan Pusat Statistik (BPS)}

Meanwhile, relatively few women work in Indonesia (in the formal sector). Only around half of the Indonesian women who are in the working age are employed in formal jobs. However, this is actually slightly higher than the world average of 49 percent in 2017 (World Bank data). Still, compared to Indonesian men, the female labor force participation rate is low. Around 83 percent of Indonesian men (in the working age) are employed.

There are two basic explanations for this situation:

(1) Traditional roles/culture; Indonesian women are more likely (than men) to take care of the household, especially after giving birth.

(2) Gender (in)equality; Indonesian women are more likely (than men) to work in the informal sector (twice as much as men). There are many examples of informal female workers in factories (for example garment factories), or who work as maids in households, or open a small business at home (selling self-made food). It is also worth noting that a significant portion of these informal female workers are unpaid workers. Those who do receive income usually get paid less than men for the same work. As stated above, being employed in the informal sector entails risks as informal sector workers typically have lower - and unstable - incomes, and lack access to basic protection and (health) services. Although considerable progress has been made in several key areas (education and health), women are still more likely to work in the informal sector, in poorly remunerated occupations, and are paid less than men for similar work.

Actually, the World Bank detected rapidly declining female unemployment in Indonesia in the late 2000s amid the commodities boom (presumably become it came from a very low base). In fact, female unemployment dropped much more rapidly than the country's male unemployment rate. However, the World Bank stopped releasing Indonesia's female unemployment rate after 2010.

Male and Female Labor Force Participation in Indonesia:

	2016	2017	2018
Total Unemployment (% of total labor force)	5.61	5.50
Total Labor Force Participation (% of total labor force)	66.34	66.67
Male Participation in Labor Force (% of male labor force)	81.97	82.51
Female Participation in Labor Force (% of female labor force)	50.77	50.89

^{Source: Badan Pusat Statistik (BPS)}

A characteristic of Indonesia is that the unemployment rate is highest for people between the age of 15 and 24, far above the country's national average. Freshly graduated students from universities, vocational schools and secondary schools have difficulties finding their place in the national workforce. Almost half of Indonesia's total number of workers possess a primary school degree only. The higher the education degree, the lower its share towards Indonesia's workforce. In recent years, however, there is a changing trend visible: the share of higher education degree holders rises, while the share of those that went to primary school only decreases.

	2006	2007	2008	2009	2010	2011
Male youth unemployment (percentage of male labor force 15-24 years of age)	27.7	23.8	21.8	21.6	21.1	19.3
Female youth unemployment (percentage of female labor force 15-24 years of age)	34.3	27.3	25.5	23.0	22.0	21.0

^{Source: World Bank}

The agriculture sector of Indonesia continues its leading position regarding absorption of Indonesia's workforce. The table below indicates the top four sectors that absorbed Indonesia's workforce in 2011 and beyond.

Employment per Sector:

in million	2011	2012	2013	2014	2015	2016¹
Agriculture	42.5	39.9	39.2	39.0	37.8	38.3
Wholesale Trade, Retail Trade, Restaurants and Hotels	23.2	23.6	24.1	24.8	25.7	28.5
Community, Social and Personal Services	17.0	17.4	18.5	18.4	17.9	19.8
Manufacturing Industry	13.7	15.6	15.0	15.3	15.3	16.0

^{¹ data from February 2016
Source: Statistics Indonesia}

Vulnerable employment (unpaid workers and own-account workers) for both men and women is rather high in Indonesia compared to developed countries and regional peers. For Indonesian men the figure has been around 60 percent of the country's total male employment force during the last decade, while the figure is around 70 percent for women. Most people that fall in the category of vulnerable employment belong to the informal sector.