During the course of Suharto's New Order, economic development added many new jobs to Indonesia's economy, thus pushing down the nation's unemployment rate. Especially the industry and services sectors experienced major increases in its employment shares towards 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, recently this figure has declined to 40 percent.
However, the Asian Financial Crisis that erupted in the late 1990s temporarily reversed this positive development and caused Indonesia's unemployment rate to touch slightly more than 20 percent, with underemployment (highly skilled workers working in low skill jobs and part-timers who prefer to work full-time) rising equally rapidly.
Most of the people that lost their jobs in urban areas during the crisis went to join the - already large - informal sector in the rural areas (particularly in agriculture). Although Indonesia has been experiencing robust macroeconomic growth in recent years and has now fully recovered from the crisis in the late 1990s, this informal sector - both rural and urban - continues to play an exceptionally large role within Indonesia's economy today. Although it is difficult to pinpoint the number exactly, it is estimated that between 55 and 65 percent of employment in Indonesia can be called informal. Today, around 80 percent of this informal employment is concentrated in the nation's rural areas, particularly in the construction and agriculture sectors.
More than a decade of macroeconomic growth has succeeded in pushing Indonesia's unemployment rate into a steady downward trend. But, as around two million Indonesians enter the labor force each year, it will be a challenge for the Indonesian government to stimulate job creation so that the labor market can absorb this group of annual newcomers; youth unemployment (among the freshly graduated) in particular is a cause for concern and immediate action.
With around 255 million people, Indonesia is the fourth most populous country in the world (after China, India and the United States). Moreover, the country has a young population as around half of the total population is below the age of 30 years. Combined, these two features imply that Indonesia currently contains a large labor force; one that will grow larger in the foreseeable future, stressing the need for job creation in Southeast Asia's largest economy.
Indonesia's Labor Force:
Source: Statistics Indonesia
The table below indicates Indonesia's unemployment rate in recent years. It shows a steady downward trend although Indonesia's economic slowdown (2011-2015) managed to block the continuation of this trend. Urban unemployment exceeds rural unemployment as people continue to move to the cities in search of employment opportunities.
Although the World Bank has not released data after 2010 female unemployment in Indonesia dropped much more rapidly compared to male unemployment rate. However, gender equality, as in most countries, remains an issue in Indonesia. Although considerable progress has been made in several key areas (education and health), women are still more likely to work in the informal sector (twice as much as the amount of men), in poorly remunerated occupations and are paid less than men for similar work.
Unemployment in Indonesia:
(% of total labor force)
(% of total urban labor force)
(% of total rural labor force)
(% of male labor force)
(% of female labor force)
Sources: World Bank and Statistics Indonesia
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.
|Male youth unemployment
(percentage of male labor force
15-24 years of age)
|Female youth unemployment
(percentage of female labor force
15-24 years of age)
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:
|Wholesale Trade, Retail Trade,
Restaurants and Hotels
|Community, Social and
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.