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Youth

Indonesia's Youth Face Bleak Job Market Amidst COVID-19 Pandemic

Strategic Insights

— 2 min read

Indonesia's economic slowdown due to the COVID-19 pandemic has severe implications for recent graduates entering the job market for the first time. With the country's economic growth shrinking to 2.97% during the first quarter of 2020, many companies have started cutting recruitment of new employees as early as March. The National Planning and Development Agency announced that the country's unemployment rate could hit its highest in more than a decade, rising to 9.2% - or nearly 13 million people - by the end of 2020. This is particularly concerning for Indonesia's youth, who have already faced high unemployment rates for the past two decades, with the 15-24 year old unemployment rate stagnating at 17.04% since the 1998 economic crisis.

Key Takeaways:

  • Indonesia's economic growth slowed down to 2.97% during the first quarter of 2020, leading to widespread job cuts and recruitment freezes among companies.
  • The National Planning and Development Agency predicts a record-high unemployment rate of 9.2% by the end of 2020, affecting nearly 13 million people.
  • The 15-24 year old unemployment rate has consistently hovered above 15% since the 1998 economic crisis, with estimates from the International Labor Organization placing it at 17.04% in 2019.
  • Doctoral candidate Tifani Siregar warns that the pandemic will worsen the labor market for Indonesia's young candidates in three ways: higher barriers of entry into the job market, long-lasting lower income levels, and worsening labor conditions.
  • Penetrating the job market will become more difficult for young candidates due to increased competition from laid-off workers and the need for higher levels of education and training.
  • Indonesia's 'rigid' labor market makes it harder for companies to hire amidst a recession, with firms becoming more cautious in their recruitment practices.
  • Even for young people who manage to get a job amid the pandemic, they will suffer long-lasting financial losses compared to those getting a job in normal economic conditions.
  • A study by the Institute of Labour Economics found that young candidates entering a rigid labor market during a recession are more likely to get trapped in unemployment.
  • The recession may also worsen labor conditions, with Hizkia Polimpung warning of reduced wage reservation and abusive employment conditions among young job seekers.
  • Around 50% of Indonesia's young workforce already works in informal jobs, which may increase due to the pandemic, with the ILO recording a global increase of young people in informal sectors from 83% to 91.4% in lower-middle income countries.
  • Stimulating the economy through subsidies and financial incentives, especially for small and medium enterprises (SMEs), is crucial to weather the labor market shocks due to the pandemic.
  • The government has set aside US$ 4.85 trillion stimulus for businesses, including tax cuts, to dampen the damages caused by the pandemic.
  • Protecting SMEs and preventing students from dropping out of school may help avoid the rate of youth unemployment from rising further.

Statistics:

  • Indonesia's economic growth slowed down to 2.97% during the first quarter of 2020.
  • The National Planning and Development Agency predicts a record-high unemployment rate of 9.2% by the end of 2020, affecting nearly 13 million people.
  • The 15-24 year old unemployment rate has consistently hovered above 15% since the 1998 economic crisis, with estimates from the International Labor Organization placing it at 17.04% in 2019.
  • Around 50% of Indonesia's young workforce already works in informal jobs.
  • The ILO recorded a global increase of young people in informal sectors from 83% to 91.4% in lower-middle income countries.
  • The government has set aside US$ 4.85 trillion stimulus for businesses, including tax cuts, to dampen the damages caused by the pandemic.

Sources:

  • National Planning and Development Agency
  • International Labor Organization
  • SMERU Institute
  • Tifani Siregar, doctoral candidate in economics at Waseda University Japan
  • Muhammad Adi Rahman, SMERU Institute researcher
  • Hizkia Polimpung, researcher at Bhayangkara University in Jakarta
  • Institute of Labour Economics in Germany
  • University of Toronto and Columbia University

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