Mon. Jul 22nd, 2024

Generation Z in Indonesia ended up in the most active sector: informal jobs

By Vaseline May26,2024
Generation Z in Indonesia ended up in the most active sector: informal jobs

As Indonesia strives to become a developed country by 2045, the country faces a key challenge: a growing number of unemployed Gen Z individuals. This downward trend in job creation is pushing Generation Z into the informal sector, with negative consequences for the economy.

Less than 50% of workers are employed in the formal sector of Indonesia’s economy. | © ILO Asia-Pacific

The average age in Indonesia is 30 years, a stark contrast to the aging population in many developed countries, such as Japan, where the average age is 50 years. These demographics suggest that the majority of the population should be at peak productivity. However, Indonesia faces a significant challenge in the formal economy: Generation Z graduates find it difficult to find work and integrate into the workforce.

Generation Z, which includes those born between 1997 and 2012, is currently the largest generational group in Indonesia with 28% of the total population or 75 million people.

Indonesia’s Central Bureau of Statistics (BPS) reported that in 2023, 9.9 million people were not in education, employment or training (NEET), most of whom were Gen Z who were in their ‘productive age’. About 1 in 5 people in this age group are classified as NEET.

Reacting to this news, Deputy Finance Minister Suahasil Nazara stressed that the government should monitor developments in labor absorption and the conditions of labor supply and demand, although he did not elaborate on the support that those who entering the labor market will receive.

“Maybe the link is not strong enough to match the sector,” says sociologist Imam Prasodjo of the University of Indonesia, referring to the disconnect between education and labor market needs. He claims that many entrepreneurs have managed to create jobs in the country and this creativity should be encouraged to create new forms of jobs for the younger generation.

Experts warn that developed countries with aging populations, including China, will soon experience a slowdown in economic growth. But in an interview with CNBC Indonesia, senior economist Raden Pardede said this presents Indonesia with a unique opportunity to increase productivity as long as this demographic advantage continues. By 2040, Indonesia will also enter an aging demographic phase. “As the nation ages, the number of productive people is declining,” he added.

Generation Z has a harder time finding work

Indonesian labor market trends show a worrying decline in opportunities in the formal sector, including for recent graduates. Over the past fifteen years, job creation in the formal sector has declined significantly: the number of jobs fell from 15.6 million between 2009 and 2014, to just 2 million between 2019 and 2024. This has forced many young people to turn to the informal sector . sector, which now employs around 74 million workers, compared to 57 million in the formal workforce.

This shift has important consequences for income stability and employment protection. Formal sector jobs, which involve workers under an employment contract with a legal entity, with an average salary of 3.1 million Indonesian rupiah per month (US$193), offer better security and legal protection than the informal sector, where the average income is 1 .9 million rupiah ($118) and lacks comprehensive social security.

IDN Research Institute published a report on Gen Z, which found that more than half of this generation is still alive and financially dependent on their families, because a “notable characteristic of this generation is their relatively limited or non-existent personal income. ”

Tadjuddin Noor Effendi, a lecturer at Gadjah Mada University, explains that complicated licensing procedures and illegal fees are among the factors deterring companies from investing in Indonesia, exacerbating the decline in formal labor absorption. Foreign investment has also been discouraged due to these problems, together with the unstable political conditions and lower competence of the workforce.

“There are policies that make foreign investment reluctant to enter Indonesia, including obtaining permits, which is quite difficult and takes one to two years,” he explained.

The significant presence of the informal sector poses challenges to Indonesia’s macroeconomic development. Informal workers, such as street vendors, house and car renovations, as well as prostitution and drug trafficking, are not controlled by the government, are paid in cash and do not pay taxes.

And this does little to alleviate poverty in the long term: their income barely covers daily living costs.

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