Creating Middle-Class Jobs Can Pave Way to a More Prosperous Indonesia, Says World Bank

, according to a new World Bank report, ‘Pathways to Middle-Class Jobs in Indonesia,’ launched today. According to the report, middle-class jobs are high-quality jobs that allow an average Indonesian family to afford a middle-class life.

From 2009 to 2019, Indonesia created an average of 2.4 million new jobs each year. In 2019, the unemployment rate reached its lowest level in two decades, falling to 5.2 percent. Job creation at this scale has contributed to the country’s economic growth and lifted many Indonesians out of poverty while reducing their vulnerability. While 49 percent of the population was classified as poor or vulnerable to falling into poverty in 1990, by 2018 this had dropped to 30 percent. However,

“Creating better-quality jobs with higher productivity and better pay is among the top priorities of the government’s policy agenda as it is a way for the nation to step up the ladder of prosperity. In order to achieve a just and prosperous Indonesia in 2045, the Government had issued Law 11/2020 on Job Creation as structural reforms to create a more robust and sustainable economic structure to accelerate investment and job creation. It has now become even more important to assist the country and its people to not only recover from the economic fallout due to the pandemic but also build forward better,” said Coordinating Minister for Economic Affairs, Airlangga Hartarto.

The importance of creating middle-class jobs is particularly crucial given that the tailwind of favorable demography will wane over the coming decade as the share of the population not of working age relative to the economically active population will start to increase.

. By 2019, there were 129 million Indonesians who were out of poverty and vulnerability but needed the economic security to join the middle-class. This is equivalent to almost half of Indonesian population aspiring to join the middle-class, a number that has been increasing in the last two decades. From around 85 million of Indonesia’s income earners, only 15.4 percent earn a middle-class income. Further, only seven percent out of the 49 million wage employees earn a middle-class income, enjoy full social benefits, and hold an indefinite-term employment contract.

“For Indonesia to achieve its aspiration to become a high-income country, there is a need to create an enabling environment in which middle-class jobs can grow and thrive. The government recognizes this and is taking steps to that end,” said Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste.

The report recommends three policy reforms for Indonesia to create middle-class jobs. The first recommendation is to accelerate across-the-board productivity growth through effective implementation of policies that unlock new firm entry and growth to create competition and innovation.

Second, direct investment promotion strategies at sectors that are likely to create middle-class jobs, such as the manufacturing sector. Complementary support, including labor market information system and unemployment insurance to finance job search and relocation, could further help workers transition towards middle-class jobs.

The third recommendation is to facilitate learning and training across the workforce and provide tailored support to special groups, in particular women and youth. Legislative changes would also be needed to allow work-life balance and support the increased participation and success of women in the labor market.

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