Beware Of The Impact Of Deindustrialization In Indonesia

Photo by Luthfiah VOI

JAKARTA Indonesia is said to be facing an era of deindustrialization seen from the storm of layoffs due to the large number of closed industrial or manufacturing sectors. This condition has the potential to have a negative impact such as an increase in the number

and poverty which can then create a number of other social problems, considering that the industrial, investment and export sectors play an important role in growing the national economy.

Let's Elka Pangestu. (Photo: Doc. ANTARA)

"It's okay"

"It's okay"

"It's okay"

"It's okay"

The Presidential Special Envoy for International Trade and Cooperation, Mari Elka Pangestu, said that currently Indonesia is facing the impact of global economic dynamics, causing instability in national economic conditions. Therefore, adjustments are needed related to economic steps and policies that can offset these impacts. "There are changes that occur globally and have an impact on policy adjustments at the national level," he said.

Although the current Indonesian economy is relatively better than other countries, he said several conditions of global change that have an impact on economies such as wars in the Middle East, Ukraine-Russia, the South China Sea conflict to the trade war that US President Donald Trump had implemented also caused an increase in the tariff burden.

This condition, continued Mari Elka, makes the policy instruments that can be carried out limited to stimulate growth, while from the APBN that experiences efficiency and reallocation will cause room for stimulation to also be limited.

Member of the National Economic Council (DEN) of the Republic of Indonesia, Arief Anshory Yusuf admitted, the era of deindustrialization is welcoming Indonesia. The condition of the industrial sector or reduced manufacturing is a form of structural transformation and one of the characteristics of a growing economy, which was originally centered on agriculture into a large industry and eventually became a service service. Deindustrialization is a natural thing, but it can be a problem when it happens prematurely," he added.

According to this Padjadjaran University academic, problems occur when there is no momentum to grow higher. Currently, Indonesia can still experience industrialization in terms of income level, but from the level of work Indonesia is almost past that momentum. This can have an impact on the absence of employment opportunities.

He gave an example, if the downstream program focuses only on the dense sector, natural resources can become a trap in reducing employment. This is a bit dangerous when the workforce enters jobs whose value is stagnant so that workers are piling up and their income is reduced. Especially when entering the service field, which is low productivity so that economic conditions are like now," explained Arief.

Didik economist J Rachbini said, one solution to overcome the trade and deindustrialization dilemma is through an outward looking program. He gave an example, with the development model of the flying goose industry or the flying Geese model of industrialization which showed 40 years ago Japan led the industrialization movement. Indonesia at that time had income above China. However, this has now changed with China leading the global industry, even Vietnam is ahead of Indonesia. The key is in the industry. Even though the economy grows 8 percent, but if the industry only grows 3 to 4 percent and there is a lot of informal sector trade, it will likely be difficult, "he said.

He emphasized that the investment, industry, and export sectors play an important role in growing the economy in the future. This is because deindustrialization also has negative effects such as unemployment which can then channel a number of other social problems.

The Chancellor of Paramadina University stated that there are several policies that need to be carried out by the government through short, medium and long-term steps. Short term can be by revitalizing industrial estates and supporting infrastructure. Medium-term can be done by developing vocational education and closed with investment in industrial research innovation for the long term," said Didik.

The Elimination Of Applicants' Age Limits Does Not Solve Unemployment Problems

The government through the Ministry of Manpower seeks to overcome the increasing unemployment rate in the country. Most recently, Minister of Manpower Yassierli issued a Circular that removed the inclusion of age requirements for job applicants. According to Yassierli, the rules for removing the age limit for job applicants emphasize the government's commitment to non-discrimination principles, as well as providing guidelines for the recruitment process to be carried out objectively and fairly.

He explained that the main point in this SE is the prohibition of discrimination in any form in the labor recruitment process. However, age restrictions are not automatically categorized as a form of discrimination.

"Restrictions on age are still possible as long as it is necessary because of certain characteristics or properties of work that are manifestly related to age, do not cause loss or decrease the opportunity to get jobs for the community in general," said Yassierli.

He said that the release of this SE was aimed at governors throughout Indonesia to be forwarded to the Regent/Mayor as well as relevant stakeholders to encourage the business world to develop recruitment policies that uphold the principles of equality and non-discrimination. Meanwhile, for the business world and industry, this SE can be used as a momentum to improve recruitment practices to be more transparent, fair, and competency-based.

However, the Circular Letter of the Minister of Manpower Number M / 6 / HK.04 / V / 2025 concerning the Prohibition of Discrimination in the Manpower Recruitment Process is considered by the President of the Association of All Indonesian Workers Unions (Aspirasi), Mirah Sumirat will not be effective in overcoming the unemployment rate in Indonesia. The reason is, the SE does not have legal force that can impose sanctions on non-compliant parties.

"If the age ban on job applicants is contained in the form of a ministerial decree or ministerial regulation, it can provide a stronger legal basis and there are consequences for those who violate it. The SE is weak because there is no sanctions regulation," he said.

He gave an example of the SE on the holiday allowance (THR) which is routinely issued annually by the Ministry of Manpower. Even though there have been criminal provisions for violators, in fact there are still many companies that do not comply with the circular. "Moreover, the SE regarding the abolition of this age limit has not been further regulated through a ministerial regulation or decision. So, it is very likely that the company could ignore it," Mirah said.

Mirah's concern as President of Aspiration does make sense. This is because the Head of the Manpower Division of the Indonesian Employers' Association (Apindo), Bob Azam, revealed that the issue of employment in Indonesia does not lie in the age limitation, but about the lack of job vacancies.

He explained that the lack of job vacancies available made the company face major difficulties in filtering out applicants. For example, a company only opens 10 job positions, but receives up to a thousand applicants at once.

This condition poses a challenge in the selection process so that the most appropriate candidates can be chosen efficiently and appropriately. What are the thousand candidates that must be tested all? That's a cost too, finally the company requires age as screening," he added.

In addition, Bob continued, the age limit is still considered important as a way to screen prospective workers, especially for jobs that demand excellent physical conditions. This is considered necessary so that the recruited workers are able to carry out their duties properly according to physical needs in the field.

The Government Must Remove Monopoly And Oligopoly Practices

Professor of Economics for the UMS Manpower, Bambang Setiaji predicts that the number of unemployed in Indonesia will continue to increase until the end of the year because the formal industrial sector has not been able to absorb a lot of labor. Therefore, increasing the number of unemployed should be an alarm for the government to immediately take policies, including providing incentives for industrial growth which in the end is able to absorb more labor.

According to him, the cause of the accumulation of unemployment is the economic structure of Indonesia which tends to be oligopolistic and monopolistic where the economy is controlled by a handful of entrepreneurs who make it difficult for new players to enter the market. This condition is an obstacle for the provision of new jobs.

"Finally, the workforce that is not absorbed by the market will choose to do informal work. For example, trading food or drinks on the side of the road, being an online motorcycle taxi driver, or being forced to be unemployed," said Bambang.

BPS data as of February 2025 shows that more than half of the population who work are informal workers. Of the 145.77 million people who work, around 86.58 million people or 59.40 percent are categorized as informal workers. The number of Indonesian informal workers in early 2025 increased by 2.45 million people compared to February last year. This number reached the highest level in the last five years.

Bambang assessed that the informal sector was too dense. Therefore, the government should prioritize the development of labor-intensive industries such as the development and strengthening of high-industrials, such as the automotive industry, the manufacturing industry, and the textile industry as the main agenda for absorbing the workforce. High industries still need to be entered. Otherwise, our country will be left behind. It is called developed countries if they have high industries," he added.

On the other hand, the development of the agricultural industry also deserves the attention of the government considering that this type of industry will continue to exist at any time. In addition to absorbing wider labor, the strengthening of the food industry is in line with efforts to realize food self-sufficiency echoed by the Prabowo-Gibran government.

The government's firmness is urgently needed to open up new jobs as widely as possible. The government must have the courage to abolish monopolistic and oligopoly practices in Indonesia and accompanied by the ease of licensing for the establishment of business in the formal sector and the medium sector. Medium sectors must also be facilitated at low capital costs. Transportation costs and other costs, if cheap, will be very helpful," concluded Bambang.