Indonesia’s middle class lament ‘worsening’ plight, as sharp drop in their population sets off economic alarm bell

JAKARTA: It has been four years since Mr Muhammad Yudhi last had a steady job. The 33-year-old motorcycle taxi driver used to work at a textile factory one hour east of Jakarta before he was laid off in 2020 due to an economic slowdown brought by the COVID-19 pandemic.
“I have been trying to apply for factory work again but they told me I’m too old. Everyone is looking for youths who are fresh out of high school who they can pay for cheap,” he told CNA.
Being a motorcycle taxi driver does not offer the financial stability and benefits found in factory work, Mr Yudhi said. 
“Even if you are on the road all day, the most you can make is 100,000 rupiah (US$6.51). After petrol and food, the most you take home with you is 70,000 rupiah, often less,” the father of two said.
Mr Yudhi makes around 2 million rupiah a month, barely enough to pay for rent in a congested neighbourhood on the outskirts of Jakarta and feed his children. It is a far cry from his days working at a factory when he earned a monthly salary of 3.5 million rupiah plus health benefits and a yearly bonus. 
“What can you buy for 2 million rupiah?” he bemoaned. “I can’t be a motorcycle taxi driver all my life. There’s no job security, no health insurance, nothing.”
Mr Yudhi is just one of millions of Indonesians who have fallen from the middle class to the aspiring middle class in the past five years.
According to the Indonesian Statistics Bureau (BPS), there used to be 57.33 million middle-class Indonesians in 2019, representing 21.4 per cent of that year’s 267 million population. 
The latest BPS data, which was issued on Aug 28, however showed that the number of people categorised as middle-class has dropped to 47.85 million in 2024, or 17.1 per cent of the country’s current population of 289 million.
The BPS defines the middle class as those having a per capita expenditure of between 2 million and 9.9 million rupiah per month, or 3.5 to 17 times the World Bank’s poverty line.
The majority of those who used to be in the middle-class range have since been downgraded to the aspiring middle class, BPS acting chief Dr Amalia Adininggar Widyasanti said during a parliamentary hearing on Aug 29. 
According to the statistics bureau, the number of aspiring middle class – those who earn 1.5 to 3.5 times the poverty line or between 874,398 and 2.04 million rupiah a month – rose from 128.85 million in 2019 to 137.5 million this year. They form 49.22 per cent of Indonesia’s population.
“I’m sad,” Mr Yudhi said when asked how he felt about being demoted from the middle-class demographic. “It feels like we are going backwards as a country. People’s welfare should be improving, not worsening.”
His wife is a part-time house cleaner earning just 600,000 rupiah a month.  
Their youngest son was supposed to start attending kindergarten this year. But with no money in the bank, the family decided to postpone the four-year-old’s education by another year.
The dwindling of the middle class has raised red flags for some experts, who say their declining number and purchasing power could trigger an economic slump as demand for goods decreases.
“(The decline in Indonesia’s middle class) is an alarm which signals that the economy is in danger,” Mr Bhima Yudhistira, executive director of think tank Centre for Economic and Law Studies (CELIOS) told CNA.
In 2018, middle-class consumption accounted for 41.9 per cent of total household consumption in Indonesia.
By 2023, this figure had dropped sharply to 36.8 per cent, aligning with an overall slowdown in household consumption, according to data from the Institute for Economic and Community Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI).
And as the middle class shrinks, the country is experiencing an annual gross domestic product increase of around 5 per cent, which also paints a picture of widening wealth inequality in Indonesia. 
Some experts even warned that Indonesia could suffer the same fate as Chile, another country which saw steady economic growth but a declining middle-class population. Social inequality and price hikes paved the way to years of protests and unrest in the South American country between 2019 and 2022.
And as president-elect Prabowo Subianto prepares for his inauguration on Oct 20, some have raised questions over his promises to continue incumbent Joko Widodo’s employment and infrastructure drives, and how much they will deliver for new business and the Indonesian worker.
So why is the middle-class population declining?
One reason could be how many middle-income workers lost their jobs because of the pandemic and the global economic slowdown that followed, said Dr Tauhid Ahmad of think tank Institute for Development of Economics and Finance (INDEF).
“During the COVID-19 (pandemic) we saw many people turning to the informal sector because of massive layoffs. After COVID-19, not many formal jobs were created so many continue to be in the informal sector which has high (income) uncertainty,” the INDEF researcher told CNA.
According to BPS data, there are 58 million formal workers in 2024 compared to 55.2 million in 2019. The rise is sluggish compared to that in the informal sector which went up from 74 million in 2019 to 84.1 million in 2024.
A formal worker is one who is employed by a company and has a fixed salary while informal workers do not normally have secure employment contracts or workers’ benefits.
The country’s minimum wage has also failed to keep up with the rising cost of living.
In Indonesia’s most populous province, West Java, the minimum salary went from 1.6 million rupiah a month in 2019 to 2 million in 2024.
East Java, the country’s second most populous province, is slightly better. The minimum wage there went from 1.6 million rupiah per month in 2019 to 2.1 million in 2024.
According to the BPS, Indonesia’s proper standard of living per capita was 991.583 rupiah per month, which means a breadwinner needs to earn 3.9 million rupiah monthly to feed a family of four. 
Amid the sluggish growth in job creation and minimum wage, Indonesia raised the country’s value added tax (VAT) in April 2022 from 10 per cent to 11 per cent. There are plans to raise the VAT further to 12 per cent in 2025.
The country also plans to mandate all formal workers to contribute 3 per cent of their salaries to the country’s Public Housing Savings Fund, known as Tapera, before 2027. The contribution was earlier mandated to civil servants.
The move was met with widespread rejection and criticism since the fund is only accessible to a single person with an income of less than 7 million rupiah per month or a married couple with a monthly income of 8 million rupiah.
Indonesia’s Central Bank has also been raising interest rates since the pandemic ended in 2022. In the last two years, the interest rates went from 3.5 per cent to 6.25 per cent, potentially affecting mortgage payments.
“The government should have kept prices low instead of introducing taxes and contributions which reduce people’s purchasing power,” Dr Trubus Rahardiansyah, a public policy expert from Jakarta’s Trisakti University, told CNA.
To make matters worse, there are very few government aids, subsidies and benefits for the middle-class population in Indonesia unlike the poor, who have access to cash incentives such as Direct Cash Aid and Hope Family Programme.
“All the aids are for the lower income households,” the expert continued.
Even those who have retained their middle-class status are feeling the financial pinch.
Madam Evi Kumala, a maths teacher at a private elementary school on the outskirts of Jakarta said life is becoming hard because of the soaring cost of living and tax increase.
The teacher’s monthly income of 3.8 million rupiah used to be just enough to feed herself three times a day, cover transportation expenses to and from her school and a mortgage on her tiny 21sq m home. 
“I can no longer afford to take my motorcycle to the mechanic or fix my house,” the 32-year-old single woman told CNA. “All my salary goes to buying groceries and paying the bills. I have no savings at all.”
Mdm Evi last saw a raise in her salary in 2019, just before the pandemic hit the country. She has been trying to ask for a raise ever since.
“During the (COVID-19) pandemic, (my school) said that these are tough times and I should be grateful for still having a job,” she said. “After the pandemic was over, (the school) argued that they are still reeling from the effects … and asked me to be patient.”
When he became Indonesia’s president in 2014, Mr Joko Widodo promised to create 10 million jobs through his infrastructure drive and ease of investment.
The target was achieved, at least on paper, resulting in the country’s unemployment rate decreasing from 5.7 per cent to 4.82 per cent in the last 10 years. 
Experts pointed out however that the decline in unemployment was largely due to the informal sector which has grown more rapidly compared to the formal ones.
Dr Tauhid of INDEF said Jokowi, as the president is popularly known, has been fixated on major infrastructure projects such as new toll roads or the creation of the country’s future capital Nusantara which itself is estimated to cost around US$35 billion.
“The infrastructure drive creates little multiplier effect. It hasn’t led to the emergence of more manufacturing plants or new businesses in areas connected by these new toll roads as the government had hoped,” Dr Tauhid of INDEF said.
The only jobs which benefited from the infrastructure drive are construction workers and providers of raw materials such as cement and asphalt.
“But these economic benefits cease once construction finishes,” he said.
Jokowi has also relaxed Indonesia’s regulations on foreign workers, including simplifying the process of acquiring permits to hire foreigners.
This is mainly to attract Chinese entities looking to finance Southeast Asia’s first high speed rail network and invest in Indonesia’s ambition to be a key player in the production of batteries for electric cars.
“The move only benefits foreign workers who have since filled high-paying jobs. The move does little to improve the welfare of Indonesian workers,” said Mr Bhima of CELIOS.
Jokowi’s term is set to end next month.
President-elect Prabowo Subianto has promised to continue and expand Jokowi’s infrastructure drives and policies, promising that they will create 19 million more jobs in the next five years.
Indonesian Finance Minister, Dr Sri Mulyani Indrawati, said that the government has been providing a number of aids and incentives to assist the middle class.
“The middle class has a strategic role in driving the economy. Therefore, the government has devised a number of programmes to improve the welfare of the middle class,” she told a seminar on Aug 30.
The government has been providing VAT tax breaks for middle-income families to buy their first houses, assisting them with their health insurance premiums and offering social security to those who lost their jobs.
Mr Bhima of CELIOS said the government needs to do more and soon, warning that the country could be suffering the same fate as Chile which saw three years of unrest because of widening social inequality, stagnant wages and increasingly high cost of living.
Like Indonesia, Chile is a producer of valuable minerals which contributed towards impressive economic growth. However, the middle class in the South American country was shrinking, something which Chilean economist Sebastian Edwards refers to as “The Chilean Paradox”.
The middle class was already discontent with soaring costs of housing, education and healthcare. Yet it was the Chilean government’s move to increase public transportation fares which proved to be the last straw according to media reports.
It prompted people to stage widespread protests which later turned into riots due to heavy-handed policing by security officials.
The series of protests subsided in 2022 after the country elected a centre-left president, Gabriel Boric who promised a series of reforms which included cutting down the country’s interest rates and providing subsidies to keep prices affordable.
Mr Bhima said there are many parallels between what happened in Chile in 2019 and Indonesia today.
In May, at least 10 of the country’s top public universities hiked their tuition fees by as much as 500 per cent. This was later reversed following complaints from students and the public.
Last month, the government announced plans to reduce train fare subsidies for the middle class.
“The (Indonesian) government needs to stop putting more burden on the middle class,” Mr Bhima said.
“Instead, the government must restore people’s purchasing power by reformulating minimum wages in Indonesia as well as providing tax cuts on basic necessities and housing.”