IMF: Indonesia's unemployment rate to remain under pressure in 2021

The COVID-19 pandemic has flipped over the Indonesian economy and labor market. The unemployment rate will continue to be threatened in 2021 as the economic growth rate may not be high enough to offset the market's slow demand. Indonesia Monetary Fund (IMF) forecast the unemployment rate in Indonesia will reach 6.8% this year. The number is higher compared to 2019 or before the pandemic. Yet, it has been improved since last year.

According to the IMF data, the unemployment rate in Indonesia has a downward trend in the past years. In 2015, the unemployment rate was 6.2%. It continued to decrease to the level of 5.3% in 2019. Unfortunately, the COVID-19 pandemic hits the unemployment rate up to 8% in 2020. Some of the sectors that suffer during the COVID-19 pandemic are tourism, construction, manufacturing, trade, transportation, and warehousing. Large-scale social distancing policies to control the spread of COVID-19 have reduced the demand for these six sectors.

The trend of unemployment rate in Indonesia (%)

Source: IMF, 2020-2025: Forecast

Chairman of the Indonesian Employers Association or Asosiasi Pengusaha Indonesia (APINDO), Hariyadi Sukamdani said agreed that the labor market is sustained this year. He is a pessimist about the labor market. It is because the company has not yet recovered from the storm. Many companies have preferred to delay the expansion until it is sure namely by 2022. Meantime, the COVID-19 vaccination program is still ongoing. "This year, the number of unemployed people is expected to reach 8.5 million to 9 million or lower than last year which was 13 million," said Hariyadi.

The Institute for Development of Economics and Finance (INDEF) predict that the open unemployment rate in 2021 will reach 10.4 million people or 7.8%. As many as 1.1 million people are unemployed due to the impact of COVID-19 and 2.5 million people are the new workforce who are not absorbed by the world of work. This calculation is obtained because employment is still limited due to the lack of recovery in the domestic industry, especially in the service sector. This is because flexible working arrangement policies such as working from home and digitization are continuing. So that the demand for workers in the service sector decreases.

To minimize the risk of the unemployment rate, the government has issued a Pre-Work Card as social assistance in the labor sector in the early COVID-19 pandemic. The concept of the Pre-Work Card is the first in Indonesia because it uses the concept of employee insurance. Apart from receiving cash assistance of IDR 600,000 per month for 4 months, the unemployed also received free training aimed at increasing the capacity and skills of the workforce. In the era of the COVID-19 pandemic, the government is partnering with several start-up companies and educational institutions that provide online courses.

The total budget provided by the government for the Pre-Work Card is IDR 20 trillion this year. The number of participants who take part in this government program is projected to reach 5.6 million people. In 2021, the government will continue the Pre-Work Card program. Yet, the number of budget allocation will be reduced 50% to IDR 10 trillion.

Also, the government has provided salary subsidies for employees with an income below IDR 5 million per month. Last year, the allocation of the salary subsidy was IDR 37.7 trillion for more than 15 million workers. The government is considering extending the salary subsidy in the first half of 2021.

The Ministry of National Development Planning plans to reactivate the engines that drive the economy in 2021, namely industry, tourism, and investment. The improvements in this sector will simultaneously increase the number of workers. If investment increases, the tourism sector begins to stretch and the industrial sector rises, the Ministry of National Development Planning projects to absorb a new workforce of 18.4 million people this year.

In addition, the economic recovery will also be supported by infrastructure development to increase the infrastructure stock, which has now only reached 43% of GDP. One of the issues that will be discussed is the problem of transportation which causes Indonesia's logistics costs to be higher. In the result, it creates a domino effect on health quality and has an impact on national economic transformation. The development of an integrated port and an integrated airport network that will link development is also one of the priorities to reduce the unemployment rate.

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