I recently spoke to a ride-hailing driver in Jakarta with a degree in economics. He smiled when I asked why he was driving. “Pak, there are too many of us looking for the same jobs,” he said. “At least with this, I eat every day.” That conversation reflects Indonesia’s economic puzzle — a young, ambitious population overflowing with potential, but a labour market that hasn’t caught up.
Indonesia is currently in the midst of a demographic sweet spot: 70% of its population is of working age. Economists call this a “demographic dividend”; that is, when a country has more workers than dependents, economic growth can accelerate. However, this dividend must be earned.
Despite its abundance of resources, Indonesia’s trajectory is increasingly uncertain. While the potential for 8% annual growth has been suggested in national discourse, many economists see a more modest 5% as likely. The key question is: Can Indonesia unlock the full promise of its demographic advantage—or will structural weaknesses hold it back?
Is the Middle Class Still the Engine?
At the heart of this dilemma is the shrinking middle class. Once hailed as the engine of Indonesia’s consumption-driven economy, this group is showing signs of strain. This segment comprises over 66% of the population and contributes to more than 81% of national consumption. The World Bank notes that middle-class consumption fueled a 12% growth in Indonesia’s economy and accounts for over 50% of national tax revenue. However, studies by BRIN (2024) reveal a concerning trend: millions have fallen out of the middle-income bracket since 2018.
This decline impacts household purchasing power and domestic demand. Middle-class spending patterns are shifting, with a greater allocation towards essentials and a decline in discretionary spending. This is evidenced by the slowing economic growth in Q1 2025, while non-essential big retailers saw weak sales, and daily necessities retailers showed steady growth.
Indonesia’s struggle to maintain its middle class contrasts sharply with some of its Southeast Asian neighbours. Vietnam and the Philippines, for example, have shown a more consistent growth in their middle-income populations over the same period, driven by sustained economic expansion. Both countries provide targeted social programs that have lifted more citizens into higher income brackets. While detailed comparative data for 2024-2025 is still emerging, the trend of decline in Indonesia, even as other regional economies demonstrate resilience in this segment, highlights a potential divergence in economic trajectories and consumer market dynamics within ASEAN.
This regional comparison underscores the urgency of addressing the factors contributing to Indonesia’s middle-class contraction.
The Demographic Dividend Is Not a Guarantee
The demographic bonus would not be fruitful if the people of working age think that the grass is greener in other countries. The rising popularity of the hashtag #KaburAjaDulu among skilled young Indonesians is a stark reminder, indicating a desire to seek better opportunities abroad. The exodus of talent can cause a significant loss of potential.
The Populix survey revealed that a significant majority of young Indonesians (aged 18-35, primarily from upper or middle-class backgrounds with at least a diploma) expressed a desire to leave the country for economic gain. The survey shows that 82% are seeking higher earnings abroad and 62% aiming for career development, while 61% are motivated by the desire for an improved quality of life.
Behind this migration mindset is a clear issue: High unemployment, particularly among educated individuals. More and more people with university degrees are unable to secure a “desk job”, signifying a “skill mismatch”. When too many people are looking for a job, it can cause high employment numbers even among those who are qualified.
If this brain drain continues, Indonesia risks squandering its demographic advantage. Talented individuals seeking better prospects abroad could slow domestic innovation, productivity, and consumption.
Turning Point: Seizing the Opportunity
To counter these challenges and truly leverage its potential, Indonesia needs to implement strategic reforms across several key areas:
First, education and skill development are paramount. Addressing the “skill mismatch” by aligning educational output with economic demands is crucial. The government should not only boost vocational training to directly equip individuals with skills demanded by industries but also foster digital literacy across all educational levels. Cultivating critical thinking skills is also essential to enable adaptability and problem-solving in a rapidly evolving economic landscape.
Second, job creation must prioritize quality and security, offering stability and opportunities for long-term career growth. The government and private sector need to collaborate to incentivize formal sector jobs with benefits and advancement paths. Fostering stronger linkages between SMEs and larger industries is vital for wider economic opportunities and formal employment growth. Lastly, effectively utilizing the largely untapped female labor force, learning from countries like Vietnam, is crucial to expand the talent pool and boost economic participation.
While the challenges are significant, Indonesia’s inherent strengths—its natural resources, large population, and entrepreneurial spirit—provide a strong foundation. The nation’s success in harvesting demographic dividend depends on decisive action in education, job creation, infrastructure, and governance. The nation should focus on shifting from insecure informal sector jobs to stable, “generational jobs” that allow individuals to build a future. By strategically addressing the shrinking middle class and fostering an environment of opportunity, Indonesia can confidently navigate its economic crossroads and fulfill its destiny as a leading economic power in the coming decades.
The article was first published in The Jakarta Post.