Employment opportunities – This article is adapted from the book “PEMIKIRAN 100 EKONOM INDONESIA: resiliensi ekonomi domestik sebagai fondasi menghadapi gejolak dunia”
The discourse on “Soemitronomics” has been gaining momentum lately. This is not only because of Prof. Soemitro Djojohadikusumo (Pak Mitro), the father of President Prabowo, but also because his ideas remain highly relevant to the challenges of our current economic development. One of the crucial issues that frequently serves as the main topic of his discussions is the urgency of productive employment opportunities.
This issue was one of the topics he covered in the inaugural lecture series at the Open University (UT) in 1984. At that time, UT had just been inaugurated by President Soeharto, and the lecture was broadcast on TVRI. I myself stumbled upon this video by chance on YouTube. It is a historic recording consisting of four educational segments, ranging from the Development Trilogy to the basic principles of macroeconomics—content that should arguably be required viewing for anyone interested in the history of Indonesia’s economy.
On that occasion, Mr. Mitro emphasized the urgency of raising the standard of living and reducing the population’s dependence on the labor force through the creation of productive jobs. The concept of “productive” here refers not only to employment opportunities in productive sectors but also to the continuous improvement of the productivity of the working population. On that basis, at the end of the lecture, he stressed the importance of skills training and the urgency of vocational education.
Reflections on Four Decades
It is interesting to observe the developments that have taken place four decades after that historic “distance learning” course, particularly in the Indonesian job market. Before that, it is worth examining two indicators that Mr. Mitro highlighted: the standard of living and the population’s dependency ratio on the labor force, given that both are intertwined with issues of productive employment opportunities.
Over the past 40 years, Indonesia’s average standard of living (measured using the World Bank’s Atlas method for international per capita national income) has increased 8.4-fold, from US$520 (1984) to US$4,910 (2024). Indonesia has moved from the group of low-income countries to that of upper-middle-income countries. Nevertheless, China—which has a larger population than Indonesia—has managed to achieve a spectacular leap from US$250 (1984) to US$13,660 (2024), a 56-fold increase.
On the other hand, the demographic burden borne by each working-age population has decreased. The ratio of the total population to the working-age population fell from 2.69 (1984) to 1.85 (2024). However, Mr. Mitro emphasized that the working-age population faces issues of unemployment and that not everyone works full-time. Therefore, when recalculated using a comparative indicator based on the full-time working population (those working at least 35 hours or more per week), the dependency ratio stands at 4.61 (1984) and 3.11 (2024).
This means that the number of dependents that each productive worker must “support” has decreased from nearly five people per worker to three people per worker. Mr. Mitro does indeed hope that this dependency burden can be reduced to between two and a half and three within a relatively short period of time. Unfortunately, it took four decades to realize that “advice.”
Improvements in living standards and a reduction in the dependency burden seem to indicate progress worth celebrating, even though the process and the time required have been quite lengthy and exhausting. Unfortunately, behind this joy lies the classic problem of the labor market, which is, in fact, one of the key pillars of development for a country with a large population. A number of labor market development indicators have not shown significant progress—or, one might say, have stagnated—in terms of creating decent and productive jobs.
First, the ratio of the employed population to the total labor force fell from 97.1% (1984) to 95.1% (2024). This situation indicates that employment opportunities have not improved, as the unemployment rate has actually risen compared to 40 years ago. Second, the proportion of full-time workers (at least 35 hours per week) relative to the total employed population has risen only slightly from 60% (1984) to 62% (2024). This reflects that opportunities for productive work have not increased significantly over this long period.
Third, the share of formal employment has indeed increased from 34% (1984) to 42% (2024). However, this picture also shows that the dominance of informal work has not yet changed. Moreover, when using the ILO’s definition of informal workers—which serves as the benchmark for the SDGs—the share of informal workers in Indonesia reached 81.2% (2023).
Fourth, the manufacturing industry—which was expected to absorb a large portion of the productive workforce—has not performed as well as hoped. The share of manufacturing workers in the total employed population rose by only 3.4 percent, from 10.4 percent (1984) to 13.8 percent (2024). In fact, the creation of informal jobs in the manufacturing sector has shown an upward trend over the past decade. This phenomenon, often referred to as premature deindustrialization, clearly indicates that structural transformation has stalled—if not outright failed.
Fifth, the difficulty vocational high school (SMK) and college/university graduates face in finding employment has not changed significantly. The unemployment rate for SMK graduates fell only slightly from 9.8% (1984) to 9% (2024). The unemployment rate for college/university graduates remained completely unchanged at 5.2% in both 1984 and 2024. Yet, these graduates are the workforce that should be fully and productively absorbed into the labor market.
Policy Recalibration for Better Employment Opportunities Is Needed
The stagnation in the development of decent, productive, and high-quality job opportunities certainly adds to concerns about the difficulty of escaping the middle-income trap and has the potential to turn the demographic dividend into a demographic disaster. Although the government has set an economic growth target of 6–8% per year, achieving sustainable economic development will be difficult unless this is balanced with job creation and improvements to the structure of a productive labor market.
Therefore, policies are needed that truly focus on addressing structural issues in the labor market—not merely short-term, populist measures. For example, two programs that the government has relied on—at least—during economic slowdowns and labor market shocks are the entrepreneurship program and the cash-for-work program. These two programs have become standard measures that the government considers effective for absorbing the labor force.
In reality, it is widely known that these programs can only address issues for a relatively short period; they lack sustainability and fail to resolve the core problems of the labor market. Nevertheless, they continue to be used as policy gimmicks, as seen in the government’s recent announcement of the 8+4+5 economic package, where cash-for-work programs have once again emerged as part of the policy package aimed at absorbing labor.
Given these circumstances, a recalibration of policy is needed—one that can directly address the core issue of creating productive job opportunities. On the demand side, the most crucial aspect is restoring the performance of the manufacturing industry, which is capable of creating productive and high-quality jobs. Since 2015, the government has actually had the 2015–2035 National Industrial Development Master Plan (RIPIN). In 2018, the government also launched “Making Indonesia 4.0” as an effort to revitalize industry in preparation for the era of cutting-edge technology.
However, developments over the past decade have fallen short of expectations. Employment in the manufacturing sector has not increased significantly, rising from 13.5% (2015) to only 13.8% (2024). In fact, a phenomenon of “manufacturing informalization” has emerged, as the share of informal workers in the sector has actually increased from 31.3% (2015) to 38.8% (2024).
Not only that, but OECD Trade in Employment (TiM) data shows that the proportion of the workforce in the manufacturing of both finished goods and intermediate goods—which are export-oriented within the global value chain (GVC)—has been steadily declining. In 2015, the proportions of the manufacturing workforce in GVC exports were 34.9% and 30.1%, respectively. By 2020, these figures had dropped to 30.8% and 29.2%, respectively. In comparison with Vietnam, the difference is like night and day, as more than 60% of Vietnam’s manufacturing workers are employed in GVC-oriented export industries.
The contribution of foreign investment to employment has also been steadily declining. Data from the Investment Coordinating Board (BKPM) shows that the share of the workforce employed in foreign direct investment (FDI) projects has consistently fallen from 64.8% (2015) to 35.5% (2024). In fact, foreign direct investment—particularly that which is export-oriented and integrated into global supply chains—is still critically needed to support the creation of productive and sustainable jobs through skills transfer and research and development (R&D) activities. On the other hand, the government appears to be heavily relying on mineral and coal downstream industries and energy security initiatives, which are inherently more capital-intensive.
Therefore, it is only fitting that the industrialization strategies outlined in the RIPIN and Making Indonesia 4.0 be reviewed. Alignment is needed with investment policy directions that can accelerate export-oriented industrialization integrated into global supply chains. Alignment is also required with policies on downstream processing and the development of a green economy, which must be capable of creating inclusive and productive jobs.
Furthermore, Rodrik (2022) proposes a new industrial policy approach that must be adapted to the current economic and technological context. First, the orientation of industrial policy must target what might be called “decent-work externalities.” The provision of decent jobs is an end in itself that holds intrinsic significance and cannot be expected to be achieved merely as a byproduct of conventional goals, such as fostering innovation in high-tech industries or strengthening national security capabilities.
Second, in this regard, the traditional industrial policy perspective—which is overly focused on manufacturing—needs to be expanded to include the service sector as well as small and medium-sized enterprises. The manufacturing sector is unlikely to generate a large number of jobs even if its share of value added in the national economy increases. This phenomenon can be observed in the experience of developed countries whose industrialization processes have matured. This is due to the substitution effect resulting from the use of highly advanced technology.
Third, future industrial policy practices need to increasingly reduce reliance on traditional top-down instruments such as subsidies and tax incentives for industrial companies. A new approach must prioritize collaborative and iterative interaction between the government and the business community. Incentives and public services can be tailored to companies’ commitments regarding job opportunities, both in terms of quantity and quality.
Supported by proper governance, such mechanisms can actually foster information exchange and knowledge accumulation for the government in crafting more effective policies with a higher probability of success. This collaborative approach between the government and companies must also involve local communities to ensure the goal of creating decent jobs is achieved, making it particularly suitable for implementation at the local government level.
Furthermore, a crucial aspect on the supply side is improving the capacity and productivity of the workforce amid rapidly changing labor market dynamics. Data from the Penn World Table (PWT version 10.10) shows that the contribution of labor to output formation declined from 38.3% (pre-reform period/1984–1997) to 27% (post-reform period/1999–2019). Data from the Asian Productivity Organization (APO) also shows that labor productivity has continued to decline from its peak of 6.2 (1990–1995) to a maximum of 3.9 (2010–2015).
In light of these conditions, skills training and vocational education play a key role, as mandated by Mr. Mitro. The government actually already has a strong regulatory foundation through Presidential Regulation No. 68/2022 on the Revitalization of Vocational Education and Training. The scope of improvements to the vocational ecosystem outlined in this regulation is actually quite comprehensive.
For example, the delivery of vocational education and training must be oriented toward the needs of the business sector, industry, the workforce, and entrepreneurship; it must be based on the principle of lifelong learning; and it must be conducted in an inclusive manner. Both vocational education and vocational training must be aligned and proceed in tandem—from the development and adaptation of curricula and occupational competency standards to the provision of access to apprenticeships and industrial work placements.
The regulation also mandates the establishment of a Labor Market Information System (LMIS), which is a key pillar in reducing skill mismatches. The LMIS contains information on the labor force structure, labor force characteristics, labor supply, and domestic and international labor demand, all of which are continuously updated in real time. As a result, workforce planning can be more precise because it is aligned with the dynamics of the labor market. Technical regulations regarding the LMIS have also been issued in the form of Ministry of Manpower Regulation No. 5/2024.
The problem is a classic one: the implementation of such policies is often hampered by complex bureaucratic processes and frequent instances of sectoral egoism. This is despite the formation of the Coordination Team for the Revitalization of Vocational Education and Training at all levels, from the national to the regional. The existence of this team has actually added to the existing “complexity” and lengthened the coordination chain because it is not monitored and does not report directly to the President.
In fact, issues related to vocational education and the labor market in general are crucial and strategic. Therefore, from an institutional perspective, President Prabowo should consider establishing an agency or body dedicated to addressing these matters under his direct control. The structure of this body could resemble Danantara, staffed by professionals in the fields of vocational education and the labor market.
The embryonic form of such a body actually already exists: the implementing agency for the Pra-Kerja card program. This body could also adopt the ILO’s concept of the well-established “sector skills council (SSC)” model. While Danantara focuses on financial capital and asset investment, the mandate of this new institution would be human capital investment.
Furthermore, greater policy support and intervention for vocational high school (SMK) graduates must be emphasized. SMK graduates require special attention because the knowledge and skills they acquire are relatively specific and sometimes even tailored to a single profession. The hope is that upon completing their vocational education, they can secure employment and earn an income.
Unfortunately, the open unemployment rate among SMK graduates is actually higher than that of graduates from other educational levels. They face a difficult situation as they are directly confronted with the distortions of a dynamic labor market and skill mismatches. On the other hand, their opportunities for upskilling or reskilling are often difficult to access.
Therefore, they need to feel the government’s support. In the short term, for example, the apprenticeship incentive program under the 8+4+5 economic policy package should not only target college graduates but also provide broader opportunities for vocational high school graduates. Another more concrete effort is the downstream industrialization project championed by the government, which should also absorb a significant number of vocational high school graduates and alumni of vocational training programs.
Ultimately, the various strategic efforts outlined here are essentially an endeavor to fulfill Mr. Mitro’s vision for the creation of productive, decent, and equitable job opportunities.
Read Also: Strengthening Vocational Workforce to Build a Culture of Excellence