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COVID-19 reducing middle-class employment: World Bank
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he World Bank says the share of middle-class jobs in Indonesia has shrunk due to the COVID-19 pandemic, while more people now make ends meet in agriculture.
The bank defines middle-class jobs as those that allow people to afford a middle-class way of living that requires Rp 3.75 million (US$258) a month. The share of these jobs declined by 5.2 percentage points to 10.2 percent in August 2020 from a year earlier.
“Indonesia’s structural transformation toward higher-quality jobs could be threatened if this trend is not reversed,” World Bank economist Maria Monica Wihardja said at an online event on Wednesday.
“Although today’s jobs have largely been successful in drawing Indonesians out of poverty, they’re still unable to lead them to the middle class,” she noted, sharing insight from a World Bank report published on Wednesday: Pathways to Middle-Class Jobs in Indonesia.
The report comes at a time when Indonesia is on the brink of falling back to the World Bank’s lower-middle income country classification following its first annual economic contraction last year since the Asian financial crisis. The archipelagic country had moved up to the upper-middle income category just last year.
Read also: Indonesia was briefly an upper middle-income country. Then came the pandemic.
Monica said Indonesia was struggling to create more middle-class jobs partly because the structural transformation that had taken place had not brought about enough additional productivity. Too few workers had moved to productive sectors, and those who had, often had insufficient productivity.
Nearly 30 percent of Indonesia’s labor force works in agriculture, followed by the retail sector at nearly one-fifth, according to Statistics Indonesia (BPS) data. While these sectors have gained more workers during the pandemic, the manufacturing sector’s share of the workforce shrank by 0.44 percentage points to 13.6 percent.
The workforce is also not well equipped to take on middle-class jobs, since nearly 60 percent of them had only nine years of schooling as of 2018, said Monica. This is equivalent to less than senior high school attainment.
Vivi Alatas, the chief executive officer of Asakreativita, said people tended to drop out during the transition period between schools as they earned a diploma, which made these periods crucial. She suggested the country increase the share of graduates of the high school level and above, as well provide upskilling opportunities for workers.
University of Indonesia economist Chatib Basri concurred, saying that improving worker productivity would require a supply-side solution. But the former Finance Minister said that could take a long time, and Indonesia would need to mitigate the transitional risks on employment.
“In the short term, it is very difficult to expect productivity to rise, but on the other hand, we cannot make adjustments. This will result in a fall in employment,” said Chatib.
