Indonesia has long been projected to benefit from a demographic bonus. Ironically, the country is instead expected to continue grappling with a persistent—and even worsening—problem: high unemployment.
According to the 2025 report by the International Monetary Fund (IMF), Indonesia’s unemployment rate is projected to reach 5%. This places Indonesia as the country with the third-highest unemployment rate in Asia, after Pakistan (8%) and China (5.1%).
Yes, Indonesia ranks third in unemployment in Asia.
This isn’t just a statistic on paper. Behind these numbers are millions of individuals who have lost hope of securing decent employment. This “achievement” also serves as a warning sign: our formal job market still struggles to absorb the available workforce effectively.
Why Can’t Indonesia’s Formal Sector Absorb Enough Workers?
According to the Indonesian Employers Association (Apindo), there are at least three key factors why Indonesia’s labor market fails to absorb the available workforce optimally:
1. Shift of Investment to Capital-Intensive Sectors
Many investors entering Indonesia today are more inclined to put their money into capital-intensive industries like automation and high-tech manufacturing. This is such an irony because the sectors that absorb the most labor are labor-intensive industries such as textiles and agriculture. This misalignment results in limited job creation despite significant investment value.
2. Mismatch in Education
Apindo notes that only 12.66% of Indonesia’s workforce are university graduates. As a result, many companies struggle to find candidates with educational backgrounds that match the requirements of the roles they’re hiring for.
3. The Skill Gap
Many Indonesians are ready to work, but lack the skills required by today’s industries. Their skill sets often don’t align with the rapid technological advancements and fast-changing business landscape. This creates a wide gap between labor supply and labor demand.
In a tech-driven era like today, industry demands are evolving rapidly. Individuals who fail to keep up with these changes and neglect to invest in their own growth will fall further and further behind. And when that happens, finding decent work becomes an increasingly difficult challenge.
