Indonesia’s shrinking middle class alarms economists
2024.09.14
Jakarta
Firdaus Wadjidi, a freelance photographer retrenched from his job at a news agency a year ago, works on his computer at his home in Tangerang city, Banten province, Indonesia, Sept. 12, 2024.
Pizaro Gozali Idrus/BenarNewsTriana Rahmawati, a mother of two, lost her publishing job in Jakarta earlier this year, forcing her family to cut back on spending drastically.
Gone are the days of leisurely outings with friends and casual coffee dates, which she could afford in her old job, where Triana worked for nine years and earned around 6 million rupiah (U.S. $400) a month.
“My husband still has a job, but we’ve gone from a double-income to a single-income household,” the 36-year-old told BenarNews. “I have to be prepared for a life of limitations.”
Her story exemplifies the broader struggles faced by Indonesia’s middle class, a group once heralded as a symbol of economic progress in Southeast Asia’s largest and most populous country.
The size of the Indonesian middle class has decreased significantly since before the coronavirus pandemic.
In 2019, about 57 million people were classified in the country’s middle class but that number has shrunk to nearly 48 million in 2024 – representing just over 17% of the country’s total population – according to the Central Statistics Agency (BPS).
Indonesia defines the middle class as households with monthly expenditures between 2 million rupiah and 9.9 million rupiah ($130 to $650).
The lingering effects of the COVID-19 pandemic, which caused waves of layoffs across multiple sectors, took a big bite out of this economic class.
Economists warn that the declining middle class could jeopardize Indonesia’s long-term ambitions to achieve “developed nation” status by 2045.
The class’s shrinkage poses a significant threat to national economic stability, said Jahen Fachrul Rezki, a researcher at the University of Indonesia’s Institute for Economic and Social Research.
“The middle class is a cornerstone of the national economy, not just for their purchasing power but because they also represent a highly skilled labor force and contribute significantly to tax revenues,” Jahen told BenarNews.
In a country where household consumption drives over 80% of spending, any disruption in middle-class financial security could have widespread ramifications, he said.
“If their numbers continue to fall, the ripple effects will be felt across domestic consumption, the labor market, and government tax collection,” he said.
A key factor contributing to the middle class’s decline, Jahen added, is Indonesia’s inability to generate high-value jobs.
Despite the country’s steady economic growth of around 5% annually, much of this growth has been concentrated in low-wage, low-productivity sectors such as retail and extractive industries.
Meanwhile, the government has struggled to spur development in high-tech sectors such as manufacturing and information technology, where wages are higher.
“The rise of the gig economy is another symptom of this issue,” Jahen said, pointing to a labor market increasingly reliant on short-term, freelance work rather than stable, full-time employment.
“Gig work like that should be a supplementary income, but for many Indonesians, it has become their primary source of employment, which is not sustainable.”
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The current economic situation, meanwhile, has led to widespread job losses. Between January and August 2024 alone, more than 46,000 workers were laid off, according to the Ministry of Manpower.
Last year, over 64,000 people lost their jobs.
Among those affected was 42-year-old photographer Firdaus Wajidi, who lost his job at a foreign news agency in August 2023. He had worked there for 5 years, earning a monthly salary of 16 million rupiah ($1,000).
Now, Wajidi scrambles to make ends meet with freelance work, earning about 7.5 million rupiah ($500) a month while grappling with mounting school fees, mortgage payments, and daily expenses for his family of five.
“Trying to apply for a job at a media company is difficult because I’m over 40,” Wajidi said. “Besides, nearly all media companies in Jakarta are facing financial struggles.”
The government has responded by expanding social safety nets to prevent further economic decline, said Muhadjir Effendy, coordinating minister for human development and culture.
“Our focus now is on providing protections, particularly in health and employment, to safeguard the vulnerable,” the state-run Antara news agency quoted him as saying.
The government is also bolstering employment-related protections, including old-age benefits, work accident insurance, pensions, and job loss insurance, he said.
However, the structural transformation of Indonesia’s labor market remains incomplete, according to Yorga Permana, a lecturer at the Bandung Institute of Technology’s School of Business and Management.
While there has been a reduction in agricultural employment, much of the growth in the services sector has been confined to low-skill jobs, leaving many workers without a pathway to upward mobility, he said.
“The government has failed to prioritize policies that create decent work,” Yorga said. “What we’ve seen instead is the domination of informal labor and gig economy jobs since 2014.”
Addressing stagnant middle-class wages must be a priority, said Muhammad Faisal, the executive director of the Center of Reform on Economics, an economic think-tank.
“The government must end the era of low wages if it hopes to rebuild a strong middle class,” Faisal said. “We need to focus on making wage growth sustainable through productivity gains.”
Pizaro Gozali Idrus in Jakarta contributed to this report.
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