Indonesia’s 5.39% economic growth fails to create jobs amid ‘jobless growth’ warning

Indonesia’s economic expansion is failing to translate into meaningful job creation, raising concerns about structural imbalances in Southeast Asia’s largest economy, according to business leaders.

A report by Tempo cited the Indonesian Chamber of Commerce and Industry as warning that the country’s annual economic growth of 5.39 percent has not been accompanied by adequate labour absorption, particularly in labour-intensive sectors.

Speaking during a hearing with the House of Representatives' Commission IX in Jakarta on Tuesday, April 14, 2026, Subchan Gatot described the situation as a classic case of “jobless growth.”

“It means that this growth is not fully reflected in the quality of labour absorption,” Subchan said, highlighting a widening disconnect between economic performance and employment outcomes.

Indonesia’s labour market continues to face significant challenges. The unemployment rate stands at 7.35 million people, while approximately 57.7 percent of the workforce remains employed in the informal sector, where productivity and job security are relatively low. Additionally, around 32 percent of workers are underemployed, underscoring limited opportunities for full-time employment.

These figures suggest that despite steady economic activity, the quality and capacity of job creation remain constrained.

Subchan attributed weak labour absorption partly to the sluggish expansion of labour-intensive industries, which traditionally play a critical role in generating employment. He noted that economic growth has yet to fully stimulate these sectors.

Compounding the challenge is a growing trend of industrial relocation to neighbouring countries due to rising production costs and persistent supply chain disruptions. While Indonesia maintains competitive nominal wage levels, its broader labour cost structure is seen as less attractive to investors.

One major deterrent is the country’s high severance pay obligations. Indonesian Chamber of Commerce and Industry (KADIN) estimates that severance pay in Indonesia can reach up to 19 months’ salary, significantly higher than the roughly five months’ salary for a 10-year tenure in Vietnam. 

Overall layoff costs in Indonesia are reported to be 240 percent higher than those in competing economies.

“This disparity encourages companies to relocate investments to countries with more efficient cost structures, such as Vietnam and Cambodia,” Subchan said.

A mismatch between minimum wage requirements and industry capacity has further complicated the employment landscape. Indonesia’s minimum wage stands at approximately US$334.60, significantly higher than Vietnam’s US$204. 

However, the average payment capacity in Indonesia’s manufacturing sector is only about US$188.31.

In contrast, Vietnam’s average actual wage, around US$342, exceeds its minimum wage, making compliance more feasible for employers.

“Most minimum wages cannot be met by labour-intensive companies,” Subchan noted, emphasising the financial strain faced by businesses.

As Indonesia strives to maintain economic momentum, policymakers and industry leaders face mounting pressure to align growth with inclusive job creation. Addressing structural inefficiencies, improving labour productivity, and enhancing cost competitiveness will be critical to ensuring that economic expansion translates into sustainable employment opportunities.