Indonesia’s Job Market Heals, but Skill Mismatch Clouds Productivity Gains

JAKARTA, Investortrust.id — Indonesia’s labor market has continued to recover through late 2025, with unemployment falling and formal employment edging higher, yet economists warn that deep structural mismatches between education and jobs still threaten long-term productivity gains.

Starting in 2025, the Central Statistics Agency began conducting employment surveys four times a year in February, May, August and November to provide more timely labor market data.

The unemployment rate dropped to 4.85 percent in August 2025 and stood at 4.74 percent in November 2025, reflecting steady job absorption across sectors even as nearly half of workers remained employed in roles misaligned with their qualifications. The Central Statistics Agency, known locally as BPS, recorded 7.35 million unemployed people as of November 2025, down 109,000 from August.

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Indonesia’s working-age population reached 218.85 million people in November, while the labor force stood at 155.27 million.

Of that total, 147.91 million were employed, an increase of 1.37 million compared with August, underscoring resilient labor demand despite global uncertainty.

Full-time employment rose by 1.85 million, while part-time workers fell by 438,000 to 35.86 million. Underemployment, defined as those working fewer than 35 hours per week and still seeking additional work, eased slightly to 11.56 million people.

Urban unemployment stood at 5.65 percent, compared with 3.31 percent in rural areas, highlighting persistent geographic disparities. Meanwhile, the share of formal workers ticked up from 42.2 percent in August to 42.3 percent in November, signaling gradual improvement in job quality.

The mismatch problem

Economists at Mandiri Institute, the research arm of PT Bank Mandiri (Persero) Tbk, argued that headline improvements mask deeper structural challenges.

Chief Economist Andry Asmoro said declining unemployment and informal employment signaled strengthening fundamentals but warned that sustainability depends on better alignment between education and industry needs.

"However, to ensure that this improvement is sustainable, job creation must increasingly be supported by alignment between labor competencies and business sector needs," he said in a statement on Monday, Feb 16, 2026.

According to data from the National Labor Force Survey, about 50 percent of Indonesian workers in 2025 experienced what economists call vertical mismatch, meaning they were either overeducated or underqualified for their roles.

That figure improved slightly from 51 percent in 2023 but remained high enough to weigh on productivity and wage growth.

Roughly 32 percent of workers were categorized as undereducated or unqualified relative to job requirements, broadly mirroring the 33 percent share of the labor force with only elementary education or less.

Sectorally, the highest mismatch rates were found in water supply and agriculture.

In water utilities, overeducated workers dominated, while agriculture remained heavily staffed by underqualified labor, reflecting limited access to training and technology adoption.

Government administration and financial services also showed relatively large pools of overeducated workers, driven by the stability and incentives of formal-sector employment.

From recovery to competitiveness

President Prabowo Subianto has publicly cited reports from regional leaders indicating that poverty and open unemployment have declined. "Regional heads report that in their areas they have already seen poverty decline and open unemployment fall," he said during the Indonesia Economic Outlook 2026 event in Jakarta on Friday, Feb 13, 2026.

He added that business leaders had also observed stronger household consumption, partly linked to government social programs. "If I believe that our economy will perform very well this year," he said, expressing confidence in continued growth momentum.

Yet economists caution that without systematic upskilling and reskilling, job creation may not translate into durable income gains. Andry said labor policy must prioritize quality employment through stronger coordination among education providers, industry and government.

"Strengthening link and match, expanding sector-based upskilling and reskilling programs, and sharpening interventions in priority regions will form sustainable advantages in the national labor market structure," he said.

For Southeast Asia’s largest economy, the challenge now lies in converting cyclical recovery into structural competitiveness.

Without narrowing the education-to-employment gap, Indonesia risks remaining stuck in a low-productivity equilibrium even as headline job numbers improve.