The Indonesian labor market reflects the broader economic and social changes the country is experiencing. The country has seen steady employment growth, mainly driven by sectors such as manufacturing, agriculture and services. Urbanization has also played a significant role in changing employment patterns, with more job opportunities available in cities than in rural areas. However, underemployment and informal employment remain persistent challenges. Underemployment often manifests itself as workers employed in positions that do not fully utilize their skills or provide adequate compensation. The informal sector, made up of small businesses and self-employment, still represents around 58 percent of the workforce. Jobs in this sector generally lack formal contracts, job security, and benefits, making it a critical area for policy intervention and improvement.

Demography and workforce distribution

Indonesia has a working population of more than 142 million people, making it the largest country in Southeast Asia. In addition, the population is particularly young with a median age of around 30 years. According to Statistics Indonesia (a non-departmental government institute responsible for conducting statistical surveys), the country is currently entering an era of “demographic bonus” in which the productive population (15-64 years old) exceeds the non-productive population. This premium is expected to peak in 2045. As such, this demographic shift presents a unique opportunity for economic growth, provided the country can effectively harness the potential of its young and dynamic workforce. However, Indonesia must address challenges such as job creation, education, health care and economic inequality to take full advantage of these opportunities.

The Indonesian government is investing in education infrastructure, teacher training and digital learning platforms. Policies to stimulate employment growth, such as incentives for foreign investment, support for SMEs and the development of industrial zones, are crucial. It is important to improve access to quality healthcare, through programs such as National Health Insurance (JKN), which aims for universal health coverage.

Distribution of staff

Indonesia’s workforce is largely concentrated in urban areas, with major cities like Jakarta, Surabaya and Bandung serving as key employment hubs. These cities attract a significant portion of the workforce due to the diversity of job opportunities available in sectors such as services, finance and technology. Urbanization has intensified this trend, leading to a concentration of jobs in metropolitan areas, which in turn drives economic growth and modernization. However, a significant portion of the population remains engaged in rural agriculture, reflecting the dual nature of the Indonesian economy.

Traditional agriculture continues to coexist with modern urban industries, playing a crucial role in rural areas in providing livelihoods for millions of people and contributing to both food security and export earnings.

Education system and workforce preparation

The education system is structured into three main levels:

• Primary;
• Secondary; And
• Higher education.

Primary education lasts six years, starting at age seven, and is followed by three years of junior secondary education. Students then progress to upper secondary education, which lasts another three years. Higher education is provided by universities, academies and polytechnics, offering various undergraduate and postgraduate programmes.

In recent years, the government has made substantial investments to improve educational infrastructure and expand access by working to integrate technology into classrooms through digital learning platforms and better internet connectivity in areas set back. Despite these efforts, significant challenges remain. Disparities in quality between urban and rural schools are pronounced, with urban schools often having better facilities, more qualified teachers, and higher levels of student performance. Access to higher education is another critical issue, as many students from rural areas face financial and logistical barriers that prevent them from pursuing higher education.

Minimum wage rates and labor costs

Indonesia’s progressive minimum wage system sets a national benchmark, allowing regional governments to adjust wages based on local economic conditions to ensure they reflect the cost of living and economic productivity. The minimum wage applies to all workers with less than one year of service, after which employees can be paid according to the company’s salary scale.

Businesses are now prohibited from delaying payment of the minimum wage, with the exception of micro and small businesses. These small businesses are exempt from the regional minimum wage but are required to pay their workers at a rate of at least 50 percent of average public consumption or 25 percent above the provincial poverty line.

Distribution by sex

Indonesia’s workforce is largely made up of young people, with more than half of workers aged 20 to 39. However, older workers also play an important role, making up around 15 percent of the workforce, and bringing valuable experience and stability. These older employees are essential to mentoring younger workers and ensuring continuity within industries.

Indonesia has seen an increasing trend in female labor force participation, particularly in urban areas and in the service sector. In 2023, women made up around 38 percent of the workforce, a figure that has been increasing in recent years. Despite this progress, gender inequality persists, particularly in leadership positions where women hold only about 14 percent of leadership positions. Additionally, in traditionally male-dominated fields, such as engineering and technology, women make up less than 20 percent of the workforce. Efforts to address these disparities include government and organizational initiatives focused on promoting gender equality and empowering women in professional settings.

To support older workers in a changing labor market, initiatives are underway to prevent their marginalization. Retraining and upskilling programs are being developed to help older employees adapt to technological changes and industry demands. For example, the pre-employment card program was expanded to include training specifically designed for older people, helping them remain competitive and productive in the job market.

Percentage-of-formal-work-by-gender-Indonesia