Economic growth is important to create jobs and therefore slowing economic growth means that job generation is curbed. Earlier today, Statistics Indonesia announced that Indonesia’s Q1-2015 economic growth slowed to 4.71 percent (y/y), the weakest pace in five years, and far away from the +7 percent (y/y) GDP growth figure that is targeted by President Joko Widodo by the end of this term in 2019, or the 5.8 percent (y/y) growth target that was set in the 2015 State Budget.

Indonesian Economic Minister Sofyan Djalil said that besides slowing economic growth another problem is that investment in Indonesia tends to be capital-intensive rather than labour-intensive and therefore the country’s unemployment rate has difficulty to decline. The main reason why investors are not eager to engage in labour-intensive investment is because they are concerned about rapidly rising minimum wages in Indonesia. Over the past two years, these wages have increased significantly and cause financial troubles for businesses.

Recent data from the Indonesia Investment Coordinating Board (BKPM) show that direct investment in Indonesia during the first quarter of 2015 managed to absorb 315,229 workers. However, this is less than the 470,510 workers that were absorbed in the previous quarter, despite direct investment in Indonesia having increased 16.9 percent (y/y) to IDR 124.6 trillion (USD $9.6 billion).

In order to reverse the economic slowdown (that started in 2011), analysts say that Indonesia needs to implement more reforms, especially in an effort to boost infrastructure development. Currently, the country’s infrastructure projects are hindered by red tape, land acquisition troubles and lack of financial resources as the private sector is generally uninterested to invest in costly infrastructure projects that need a lot of patience before they see returns.

Indonesia's Unemployment Statistics 2010-2014:

          2011         2012         2013         2014         2015¹
Labor Force   119,399,375   120,320,000   120,170,000   121,870,000   128,300,000
- Working   111,281,744   113,010,000   112,760,000   114,630,000   120,850,000
- Unemployed      8,117,631      7,310,000      7,410,000      7,240,000     7,450,000

¹ data from February 2015

   2006  2007  2008  2009  2010  2011  2012  2013  2014
(% of total labor force)
 10.3   9.1   8.4   7.9   7.1   6.6   6.1   6.2   5.9

Source: Statistics Indonesia (BPS)

Indonesia's Unemployment Rate 2006-2014 (percentage of labour force):

Unemployment Rate of Indonesia Rises Slightly in August 2014