Cooled Cappuccinos and Hot Statistics (1)

In a trendy café cooled by the steady hum of air conditioning, two besties—Cangik and Limbuk—sat nestled in a corner booth, sipping iced lattes and diving headfirst into the hottest topic buzzing across the internet: unemployment, absolute poverty, and that fiery rumour that recent protests are allegedly bankrolled by corrupt elites.

Cangik, ever the sharp one, leaned forward and said, "According to President Prabowo, the latest report from the national statistics agency claims that both absolute poverty and unemployment have decreased. What do you make of that, Limbuk?"

"President Prabowo’s claim," Limbuk replied, "citing BPJS reports that absolute poverty and unemployment have decreased, has triggered a mixed reaction from critics and economists. While government-aligned pundits hail this as evidence of sound policy and effective leadership, many independent economists have raised eyebrows. They argue that official statistics can sometimes mask the lived realities on the ground, especially when informal work, underemployment, and rising cost of living are taken into account. Some analysts question the reliability and timing of the data, suggesting that such positive figures might be selectively highlighted to polish the administration's image. Others note that the definition of "absolute poverty" used by the state may be too narrow, excluding those who, while not technically impoverished, still struggle daily to afford decent food, housing, and healthcare. For these observers, the rhetoric of success rings hollow unless it is matched by tangible improvements in people’s lives.

Over the past five years, Indonesia’s official unemployment rate has gradually declined after peaking during the COVID‑19 crisis. In 2020, it reached approximately 7.1 %, falling to around 6.5 % in 2021, then to about 5.9 % in 2022, and roughly 5.3 % in 2023. By early 2024 the rate had dropped further to around 4.9 %, and as of the first quarter of 2025, it stood at approximately 4.76 %—the lowest since 1997.

Looking ahead, most macroeconomic forecasts anticipate a modest rebound. The International Monetary Fund projects the unemployment rate to rise slightly to about 5.0 % in 2025 and to around 5.1 % in 2026. Equally, econometric models from institutions such as Trading Economics suggest further mild improvements, with the rate expected to hover near 4.8 % by 2026 and around 4.7 % in 2027. These projections imply a stabilising labour market that returns to levels not seen since before the pandemic.

The apparent contradiction between falling unemployment figures and the reality of mass layoffs (PHK) lies in the way employment data is collected and interpreted. Official statistics often rely on narrow definitions of unemployment—typically counting only those actively seeking work and not currently employed. This excludes discouraged workers who have given up job hunting, those in informal or precarious jobs, or people who have taken up gig work or short-term contracts just to survive.

Furthermore, a rise in layoffs does not necessarily translate into higher unemployment if those affected are quickly absorbed into other sectors, particularly informal ones, such as ride-hailing, online commerce, or freelance labour. In Indonesia, the informal sector is vast and often acts as a buffer during economic downturns, masking the deeper impact of job losses. Critics also highlight how employment figures can be massaged or selectively reported to create a perception of stability, especially in politically sensitive times. Therefore, while the official unemployment rate might show a decline, it does not necessarily reflect job quality, job security, or actual economic well-being on the ground.

In Indonesia, the institution responsible for measuring unemployment is BPS (Badan Pusat Statistik), which is the Central Statistics Agency. BPS follows international guidelines set by the International Labour Organisation (ILO), but with some local adaptations.

According to these standards, a person is considered unemployed if they are of working age (usually 15 years and above), are not working at all during the reference week, are available for work, and are actively seeking employment. This is known as the "strict" definition of unemployment. However, many people in Indonesia fall into grey areas—they may work sporadically, take on part-time or informal jobs, or stop looking for work altogether due to discouragement. These people are not included in the unemployment rate, even if their economic conditions are precarious.

Indonesia’s official unemployment rate, as reported by BPS, follows the ILO’s “strict” definition—that is, only those of working age who are without work during the reference week, are available for work, and are actively seeking employment are counted. Such a narrow measure, while useful for international comparisons, often underrepresents the realities of the labour market in Indonesia. It excludes those in underemployment—individuals working fewer than 35 hours per week but who wish for more work—and those in informal jobs whose earnings are unstable or inadequate.

If we adopt a broader definition, unemployment in Indonesia expands significantly. This extended measure includes part‑time workers seeking more hours, discouraged workers who have stopped job hunting, and those preparing to start a business but not currently employed. BPS data suggests around 8 % of the workforce is underemployed—meaning they work less than full‑time yet desire additional work. Independent studies even estimate that “hidden” unemployment—including discouraged workers—could raise the true unemployment rate to as much as 14 %. This broader metric aligns more closely with ILO recommendations for capturing time‑related underemployment and the potential labour force.

Internationally, the ILO promotes a three-tiered classification: employed, unemployed, and outside the labour force. Countries may differ in how rigorously they apply these categories, especially in economies with large informal sectors like Indonesia. Consequently, while the numbers may appear to suggest improvement, they may not fully capture hidden unemployment, underemployment, or job insecurity.

When unemployment in Indonesia is calculated using a broader definition than the narrow “official” headline rate, the picture changes considerably. According to BPS, around 8 percent of the labour force are underemployed – meaning they work fewer than 35 hours per week yet would like more hours. In absolute terms, with a workforce of roughly 153 million as of early 2025, this implies approximately 12.2 million underemployed individuals. Moreover, part-time workers constitute about one-third (34 percent) of all employed persons, equating to nearly 52 million people, with many of them unsettled in informal or precarious roles. Finally, independent estimates suggest that “hidden unemployment” – such as discouraged job-seekers – may number around 15 million, which would lift the actual unemployment-equivalent rate to as much as 14 percent of the labour force.

Therefore, while the official unemployment rate hovers near 4.8–4.9 percent, a broader, more realistic assessment that includes underemployment and hidden unemployment could see Indonesia’s “true” unemployment and job underutilisation rate rise to around 12–14 percent.

Presenting Indonesia’s labour market over the past five years using a broader framework paints a more nuanced picture than the official unemployment figures alone. Based on BPS data, underemployment—defined as individuals working under 35 hours per week while actively seeking more work—stood at 8.00 percent in February 2025, within a workforce of approximately 153 million. That amounts to around 12.2 million underemployed individuals.

Looking back, emerging evidence—such as that cited by Indonesia Investments—indicates that underemployment rates remained elevated: around 7–9 percent throughout 2020 to 2024, while informal employment hovered between 55–65 percent. Notably, in 2023 about 30 percent of workers were clocking under 35 hours per week, signalling a serious underutilisation of labour. In absolute terms, nearly 16 million workers in 2024 expressed a desire for longer working hours, marking an 80 percent rise since 2018.

Furthermore, discouraged workers—those who have ceased job hunting—are not included in official BPS unemployment figures, but research suggests they may constitute a significant hidden group, possibly numbering in the millions.

To summarise in figures:

• Underemployment hovered around 8 percent (~12 million) in early 2025.
• Part-time/informal work constituted about 25–30 percent of the workforce.
• Potentially discouraged workers, though not officially measured, likely add several million more to the broader unemployment picture.
• Adding underemployment, time-related underutilisation, and hidden discouragement, a more expansive labour underutilisation rate for Indonesia hovers between 15–20 percent—far beyond the 4.8 percent official figure.

The perception that poverty figures in Indonesia appear lower than expected largely stems from the fact that BPS uses a national poverty line rather than international standards. This does not necessarily mean the data is invalid or manipulated—it simply reflects a different frame of reference. The poverty line defined by BPS is based on the minimum cost required to meet both basic food needs (2,100 kilocalories per day) and essential non-food needs such as housing, education, and transportation. As of late 2024, this threshold stood at around IDR 595,000 per person per month.

By contrast, international standards such as those from the World Bank use poverty lines based on purchasing power parity (PPP), which allows for comparisons across countries by adjusting for price differences. These lines are far higher: the lower-middle-income poverty line is about US$4.20 per day, and the upper-middle-income threshold is US$8.30 per day. When these benchmarks are applied to Indonesia, the percentage of people living in poverty rises significantly—reaching nearly 20 percent and even exceeding 68 percent depending on the threshold.

So, while BPS data does show a decline in poverty based on its national standard, the reality may be far more severe when judged by global economic standards. This difference is not due to dishonesty, but rather a technical distinction between "absolute poverty" in a local context and broader international benchmarks. That said, critics argue that relying solely on national definitions may risk underestimating the socioeconomic vulnerability of millions.

The implications of the broader unemployment data in Indonesia are far more complex than official statistics may suggest. While the headline figures indicate a decline in the narrow unemployment rate—those actively seeking but unable to find work—this does not reflect the growing segment of the population stuck in informal, unstable, or underpaid jobs. Millions of Indonesians work in precarious employment without contracts, benefits, or long-term security, which the official metrics often fail to fully capture. The rise in disguised unemployment and underemployment means that while someone may technically be “employed,” their income and working conditions do not lift them out of poverty or provide a stable livelihood.

These broader trends reveal a labour market that is not inclusive or resilient enough to absorb the growing working-age population. When young graduates or recently laid-off workers take up gig jobs or sell food by the roadside just to survive, they may not count as unemployed, but they are certainly not thriving. This masks the deeper economic fragility that lies beneath the surface of growth figures and can distort policymaking if these realities are ignored.

In practical terms, it means that the government may overestimate its success in tackling joblessness, while millions continue to face daily economic insecurity. A misreading of the real labour situation may lead to policies that prioritise short-term optics over long-term structural reform. Without tackling informality, upskilling, and industrial transformation, the economy risks becoming trapped in a low-productivity cycle.

Over the past five years, Indonesia’s official absolute poverty rate as reported by BPS has shifted as follows: in March 2019 it stood at 9.41 percent (approximately 25.14 million people); by March 2020 it rose to 9.78 percent (26.42 million) amid the pandemic; in March 2021 it peaked at 10.14 percent (27.54 million); then began falling to 9.54 percent in 2022 and further to 9.36 percent in March 2023. As of March 2024, the poverty rate had declined to around 9.03 percent (25.22 million), the lowest in a decade.

If we apply international poverty lines, the scale changes dramatically. According to the World Bank’s revised 2021 PPP standards, in 2024 approximately 5.4 percent of Indonesians lived below the international extreme poverty line of US$3.00 per day—equivalent to very deep poverty. When using the US$4.20 per day benchmark typical of lower-middle-income countries, about 19.9 percent were classified as poor. And under the US$8.30 per day line for upper-middle-income countries, a staggering 68.3 percent of the population fell below that threshold.

In summary, the BPS national data do confirm a clear downward trend in absolute poverty—from over 10 percent during the pandemic to around 9 percent today. However, viewed through international standards, a much larger segment of the population remains vulnerable or poor, especially when broader poverty definitions are used.

Statistics Indonesia (BPS) presents a layered picture of economic hardship and relative prosperity rather than describing all hardship under a single “poverty” label. According to BPS’s report from May 2025, as of September 2024, 8.57 percent of the population (around 24.06 million people) were officially classified as living in poverty—that is, below the national poverty line. Beyond that group, 24.42 percent (approximately 68.51 million) fell into the category of “vulnerable poor” (with income between one and 1.5 times the poverty line). A further 49.29 percent (about 138.31 million) comprised the “emerging middle class” (earning 1.5–3.5 times the poverty line). Meanwhile, the formally defined middle class accounted for 17.25 percent (48.41 million), and only 0.46 percent (1.29 million) were considered affluent.

Thus, Indonesians experience levels of economic vulnerability beyond those who are counted as officially poor. The “vulnerable poor” are precariously close to poverty and likely to fall back with even a minor economic shock. The “emerging middle class” may seem comfortable but still face fragility, lacking resilience to health emergencies or inflation. Meanwhile, only a small fraction enjoy real financial security.

To effectively address the complex layers of unemployment in Indonesia, President Prabowo’s Cabinet must move beyond cosmetic job creation and adopt a more structural, inclusive approach. First and foremost, the government should prioritise transforming the informal sector into a more formalised, secure labour market. This means creating incentives for small businesses to register formally, offering social protection schemes for informal workers, and improving legal frameworks that protect all workers—regardless of their contract type. Tackling the dual labour market is key to ensuring no one is left behind in the race for economic growth.

Furthermore, the Cabinet must invest heavily in upskilling the workforce to meet the demands of a shifting economy increasingly driven by digitalisation, green industries, and automation. Vocational training should no longer be an afterthought—it must become central to national education planning. Public-private partnerships can play a vital role here, ensuring training matches real industry needs. Not every graduate needs a university degree; some need relevant skills, tools, and access to stable job pathways.

Crucially, Indonesia needs to rethink its industrial policy. Relying solely on extractive industries or foreign investment in low-value manufacturing traps the economy in low-productivity cycles. The Cabinet should promote value-added industries, invest in domestic supply chains, and support startups and cooperatives that innovate from the grassroots. Only by reshaping the production base can job creation become sustainable and resilient.

Lastly, decentralising job-creation strategies is essential. The Cabinet must empower regional governments to develop local economic ecosystems that suit their unique demographics and resources. One-size-fits-all policies won’t solve an archipelago’s employment problem.

To tackle poverty meaningfully, President Prabowo’s Cabinet must adopt a multidimensional and long-term approach that goes far beyond cash handouts and statistical manipulation. True poverty reduction means not only ensuring people have enough to eat today, but also that they are empowered with the tools, rights, and opportunities to break the intergenerational cycle of deprivation. This requires a strong commitment to equitable economic growth, inclusive public services, and institutional reform.

First, the Cabinet must invest in rural transformation—not just by building infrastructure like roads and irrigation, but by genuinely empowering smallholder farmers through access to land, fair prices, sustainable technologies, and cooperatives. Agrarian reform should no longer be shelved as a political liability; it must be embraced as an engine of justice and productivity.

Second, they must ensure universal access to quality education and healthcare, especially in remote and marginalised regions. This isn’t charity—it’s the foundation of human capital. If children in Papua, NTT, or the outer islands continue to be left behind in literacy, nutrition, or basic healthcare, no amount of economic growth will translate into lasting poverty reduction.

Third, social protection systems must be expanded and digitalised—not just to prevent leakages, but to ensure dignity. Instead of seeing the poor as passive recipients of aid, policy should treat them as citizens with agency, capable of contributing to and shaping the economy.

Finally, the Cabinet must tax the rich properly. Fiscal justice is a non-negotiable requirement. Without progressive taxation, any poverty policy will be like mopping the floor while the tap is still running. A state that cannot redistribute wealth cannot claim to fight poverty in earnest.

Then, with a mischievous glint in her eye and one eyebrow raised, Cangik leaned forward and asked, “But tell me this, Limbuk—do you really believe those protestors out there are being bankrolled by corrupt elites?”

[Part 2]

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