Jakarta, IndonesiaSentinel.com — Indonesia is facing a pressing challenge as its middle class slips into the lower middle or aspiring middle class (AMC) category, a shift that threatens national economic growth. Experts warn that the government must take swift action to address this issue.
Labor expert Tadjudin Nur Efendi from Universitas Gadjah Mada (UGM) emphasized that the most concrete government intervention would be ramping up investment, which could create new job opportunities and curb unemployment.
“When investments come in, they create jobs, and lower unemployment rates. However, unemployment remains high, and that burdens the middle class,” Tadjudin explained during an interview on September 7, 2024.
Currently, both small businesses (SMEs) and large industries in Indonesia are not seeing encouraging investment levels. Tadjudin pointed out that this has contributed to rising unemployment and the shrinking middle class.
Data from the Ministry of Manpower reveals that between January and August 2024, 46,240 workers were laid off. In comparison, 57,923 workers lost their jobs throughout 2023.
“The Ministry of Manpower reports that as of August 2024, 46,240 workers were laid off. And that doesn’t include layoffs from 2023, which were already significant. This contributes to the decline of the middle class. In 2023, about 57,923 workers were laid off,” Tadjudin said.
He further highlighted the importance of creating job opportunities through investment. “Investment in Indonesia hasn’t been particularly promising recently, whether in the SME sector or larger industries,” Tadjudin added.
Investment data from the Ministry of Investment/Indonesia Investment Coordinating Board (BKPM) shows that the first half of 2024 saw a total investment of IDR 829.9 trillion ($54.9 billion), a 22.3% increase from the same period in 2023. This figure accounts for 50.3% of the annual investment target and helped generate 1.2 million jobs in the first half of 2024.
Aside from investment, Tadjudin called on the government to improve social protection systems, particularly in employment and healthcare, given that social insurance programs significantly contribute to fiscal stability through participant contributions.
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A shrinking middle class could have a profound impact on social protection programs, as fewer people will be able to afford insurance premiums.
“There’s a real risk here—people might not be able to pay certain taxes or social insurance contributions like BPJS [Indonesia’s social security system] for employment and healthcare. The middle class has been sustaining these programs, but if they decline, the impact could be severe,” Tadjudin concluded.
(Ray)
