How the COVID-19 pandemic will leave more young people unemployed in Indonesia

Luthfi T Dzulfikar

THE JAKARTA POST/ANN – COVID-19 continues to slow down Indonesia’s economy, and this may have severe impacts on recent graduates entering the job market for the first time.

With the country’s economic growth shrinking to 2.97 per cent during the first quarter of 2020, many companies started cutting recruitment of new employees as early as March.

The National Planning and Development Agency recently announced the country’s unemployment rate could hit its highest in more than a decade, rising to 9.2 per cent – or nearly 13 million people – by the end of 2020.

Before the pandemic, 2019 estimates from the International Labour Organisation placed Indonesia’s 15-24 year old unemployment rate (17.04 per cent) as the second highest in Southeast Asia. Indonesia’s rate has stagnated at high levels for the past two decades, having never gone below 15 per cent since the 1998 economic crisis.

The Conversation spoke to doctoral candidate in economics at Waseda University Japan, Tifani Siregar, who said even before the pandemic, employment trends for Indonesia’s youth were already concerning, and will worsen.

She said the pandemic will worsen the labour market for Indonesia’s young candidates in three ways: higher barriers of entry into the job market, long lasting lower income levels, and worsening labour conditions.

The National Planning and Development Agency recently announced Indonesia’s unemployment rate could hit its highest in more than a decade, rising to 9.2 per cent – or nearly 13 million people – by the end of 2020. File photo shows the Jakarta skyline

HIGHER BARRIERS OF ENTRY INTO THE JOB MARKET

Low levels of education in the country’s workforce, inadequate vocational training programmes and an increasing skills deficit due to digital advancements are often seen as contributing factors to high unemployment figures before the pandemic.

SMERU Institute researcher Muhammad Adi Rahman told The Conversation the pandemic will make penetrating the job market more difficult for them in the years to come.

“The competition will be much more fierce as they will have to fight it off not only with other young candidates, but also with jobseekers who were laid off because of the crisis,” he said.

Tifani, on the other hand, said Indonesia’s relatively “rigid” labour market also makes companies’ hiring practices during the recession even more rigorous.

“In Indonesia, there are a lot of regulations designed to protect workers, from higher firing costs to relatively higher minimum wages compared to the national average,” she explained.

Things will get worse even after the pandemic recedes, Tifani added, as firms become more careful in recruiting new employees.

A 2016 study by the Institute of Labour Economics (ILO) in Germany, for instance, found young candidates entering a rigid labour market during a recession were more likely to get trapped in unemployment.

WORSENING LABOUR CONDITIONS

Researcher Hizkia Polimpung at Bhayangkara University in Jakarta said aside from lower income, the recession might also negatively impact working conditions.

The impact will be worse for young jobseekers as they will have a reduced “wage reservation” – the lowest salary at which a worker would be willing to accept a particular type of job – compared to experienced workers.

“The end result is not only the possibility of unemployment, but also abusive employment conditions,” he said.

The poor employment conditions might, among others, force desperate young graduates to accept jobs they are overqualified for with low pay and minimum growth opportunities. Others might even be forced to accept informal jobs, typically characterised by their vulnerable contract terms and substandard working conditions.

Around 50 per cent of Indonesia’s young workforce already work in informal jobs, with the number projected to increase due to the pandemic.

At the global level, for instance, ILO recorded an increase of young people in informal sectors from 83 per cent to 91.4 per cent in lower-middle income countries.

WHAT CAN BE DONE?

SMERU’s Adi said stimulating the economy through subsidies and financial incentives – especially for small and medium enterprises (SMEs) – is important to weather the labour market shocks due to the pandemic.

The government has set aside USD4.85 trillion stimulus for businesses, including tax cuts, to dampen the damages caused by the pandemic.

“During the 1998 crisis, SMEs were an important economic buffer, while now all types of businesses are severely hit,” he said.

By protecting the businesses, the government will help SMEs continue hiring and lessen shocks in the labour market.

The government has also disbursed money to help struggling students amid the pandemic.

The Alliance of Indonesian Student Executive Bodies claimed in their survey 83.4 per cent of university students have parents whose income was affected by the pandemic, with 76.9 per cent unsure whether they can pay their tuition fee next semester.

That results in at least 50 per cent of private university students struggling to continue paying for their education.

By preventing students from dropping out of school, the government may avoid the rate of youth unemployment from rising further, Tifani said.