April 14, 2026 | 02:09 pm
TEMPO.CO, Jakarta - The Indonesian Chamber of Commerce and Industry (KADIN) stated that Indonesia's economic growth has not led to a significant increase in labor absorption. Although the economy is growing at an annual rate of 5.39 percent, this growth is not strong enough to create jobs, especially in labor-intensive sectors.
Vice Chair of KADIN for Manpower, Subchan Gatot, referred to this condition as a phenomenon of jobless growth. "It means that this growth is not fully reflected in the quality of labor absorption," Subchan said during a hearing with the House of Representatives' Commission IX in Senayan, Jakarta, on Tuesday, April 14, 2026.
According to him, the labor market is currently facing significant structural pressures. The unemployment rate still stands at 7.35 million people, while around 57.7 percent of the workforce is engaged in the informal sector with relatively low productivity.
Additionally, about 32 percent of workers are not employed full-time. This condition indicates that, despite economic activity, the quality and capacity of labor absorption remain limited.
Subchan stated that the weak labor absorption is inseparable from challenges in the industrial sector, especially in labor-intensive industries. He said that economic growth has not optimally driven the expansion of this sector.
On the other hand, he mentioned a trend of industrial relocation to other countries due to increasing production costs and supply chain disruptions. Despite Indonesia's competitive nominal wage level, its overall labor cost structure is unattractive to investors.
One of the main factors is the high severance pay obligations. KADIN noted that severance pay in Indonesia can be as high as 19 months' salary, which is much higher than the approximately five months' salary for a 10-year tenure in Vietnam. Moreover, the cost of employee layoffs in Indonesia is 240 percent higher than in competing countries.
Subchan stated that this disparity urges companies to relocate their investments to countries with more efficient cost structures, such as Vietnam and Cambodia.
Additionally, there is a mismatch between the minimum wage and the industry's actual capacity. The minimum wage in Indonesia is around US$334.60, higher than the US$204 in Vietnam. However, the average payment capacity in Indonesia's manufacturing sector is only around US$188.31.
Conversely, in Vietnam, the average actual wage is above the minimum wage, at around US$342. This condition makes it difficult for many labor-intensive companies in Indonesia to meet the minimum wage requirements.
"Most minimum wages cannot be met by labor-intensive companies," he said.
Read: Airlangga: Indonesia's Economic Growth to Exceed 5.3% This Year
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