The Central Statistics Agency (BPS) records that the unemployment rate in Indonesia reached 7.86 million people as of August 2023. This figure has decreased by 560 thousand people compared to the same period last year.

Acting Head of BPS, Amalia Adaninggar Widyasanti, stated that despite the decrease when compared to August of the previous year, the percentage and number of unemployed individuals in August 2023 are still relatively higher than before the pandemic.

She explained that with a labor force of 147.71 million people, the labor force participation rate (LFPR) reached 69.48 percent. The proportion of formal workers increased due to the growing proportion of the population working as laborers/employees. Full-time workers also increased, although still lower than before the pandemic.

Meanwhile, Shinta Widjaja Kamdani, the Chairman of the Indonesian Employers Association (Apindo), emphasizes the persistently high unemployment rate due to a drastic decline in labor force absorption over the past nine years, particularly in the manufacturing sector.

"The labor force absorption rate is only one-fifth of what it was nine years ago because investments tend to be capital-intensive," she told Tempo on Wednesday, November 8, 2023.

According to her, capital-intensive investments prioritize the use of machinery and technology to support faster, more effective, and efficient production activities. As a result, the existing labor force is not extensively absorbed due to limited demand. The proportion of labor force absorption in the manufacturing sector has continued to decline, reaching 44 percent.

Meanwhile, the declining contribution of the manufacturing sector to the Gross Domestic Product (GDP) also reflects a shift towards the service sector. Unfortunately, the growing service sector tends to be of low quality. Apindo projects the creation of new jobs in the future, reaching up to 2 million jobs per year, including industrial and micro, small, and medium-sized enterprises (MSMEs).

Yusuf Wibisono, Director of the Institute for Demographic and Poverty Studies (Ideas), mentioned that the unemployment rate reported by BPS is still higher than the government's previous target in the National Medium-Term Development Plan (RPJMN).

In RPJMN, the unemployment target for 2024 is set at 3.6-4.3 percent. According to Yusuf, it will be challenging for the Jokowi administration to reduce the unemployment rate from 5.32 percent to this target within the remaining one year.

Equally important is the issue of underemployment or those working below normal working hours. This group consists of the labor force working sporadically in the informal sector. "They work odd jobs, doing anything to survive," he said. The underemployment category in August 2023 reached 6.68 percent, up from 6.32 percent in August 2022.

Regarding this matter, Febrio Kacaribu, Head of Fiscal Policy Agency (BKF) at the Ministry of Finance, stated that overall, the employment situation in Indonesia has improved, in line with sustained economic growth.

"Sustained economic growth has also contributed to the improvement of Indonesia's employment conditions, reflected in the consistently decreasing Open Unemployment Rate (OUR) to reach 5.32 percent in August 2023, from 5.86 percent in August 2022," said Febrio in a written statement received in Jakarta on Wednesday, November 8, 2023.

Febrio claimed that economic growth has successfully created an additional 4.55 million jobs in the period from August 2022 to August 2023. Economic improvement is also accompanied by an increase in the proportion of formal employment to 40.89 percent from the previous 40.69 percent as of August 2022.

This is evident in the increase in the Labor Force Participation Rate (LFPR) to 69.48 percent compared to the LFPR in August 2022, which was 68.63 percent. This LFPR figure is the highest level since 1986. "The LFPR for women is consistently increasing higher than for men, indicating an improvement in employment opportunities for women," said Febrio.

On the sectoral side, job creation is occurring in almost all sectors. The fields of agriculture, trade, and manufacturing still remain the highest sectors with the most labor force, reaching a total of 61.03 percent.

Meanwhile, the accommodation and food and beverage sector experienced the highest increase in employment with 1.18 million people, followed by the construction sector with 0.77 million people, and the agricultural sector with 0.75 million people. The improvement in employment conditions is also accompanied by an overall increase in average monthly wages.

BPS had previously reported that Indonesia's economic growth was at 4.94 percent on an annual basis (year on year/yoy) in the third quarter of 2023. During that period, the Gross Domestic Product (GDP) at current prices was recorded at Rp 5,296.0 trillion, while the GDP at constant prices reached Rp 3,124.9 trillion.