Adrian Nalendra Perwira
Economics Researcher, GREAT Institute
“Seandainya negeriku serupa rahim ibu; merawat kehidupan menguatkan yang rapuh”
Recently, a verse from the song Seperti Rahim Ibu by the legendary music group Efek Rumah Kaca has often been heard again. Not surprisingly, the metaphor in its lyrics resonates with the inner feelings of many civil society members who long for protection—at the very least, the freedom to speak and to work.
The demonstrations at the end of August still leave wounds, but from those wounds grows a shared determination for a more just Indonesia. Voices from civil society, universities, and research institutions echo: the economy is not enough to merely grow—it must also bring welfare. On the ground, concerns are real. Fragile job quality, waves of layoffs, persistent inequality, and a large share of informal employment with minimal protection. Here lies the relevance of policy measurement: we need targets that can improve job quality.
In the 2026 State Budget Note (Nota Keuangan RAPBN 2026), there is a new indicator that is rarely discussed but is actually worth paying attention to: the proportion of formal job creation, with a target of 37.95 percent. The document states that this indicator is intended to provide protection and improve worker welfare; the higher the percentage, the better the development of the labor market.
Unfortunately, there is no detailed explanation of what exactly is being measured. It is unlikely that this refers to the stock share of formal workers—since it would be implausible for the government to aim to reduce the share from 40.60 percent in February 2025 to 37.95 percent in 2026. It is also unlikely to represent a percentage increase in the share of formal workers, which would imply a formal employment share of 55.86 percent in 2026—considering that over the past decade the formal-informal structure has remained relatively unchanged.
Thus, this paper interprets the 37.95 percent figure as a flow indicator—the proportion of new jobs that are formal in 2026. The share of formal employment increases only if inflows into formal jobs (formal hiring and/or transitions into formal employment) exceed outflows (layoffs in the formal sector and/or movements out of formal employment). The question is why the government needs to introduce this new indicator. Is the target realistic? And how can it be achieved?
Current Condition
As of February 2025, the employed population reached 145.77 million, an increase of 3.59 million compared to February 2024. At the same time, the share of informal workers rose from 59.17 percent to 59.40 percent, reducing the formal share from 40.83 percent to 40.60 percent (although the absolute number of formal workers still increased).
According to BPS data, the number of formal workers in February 2025 was 59.19 million. Based on this, the net increase in formal workers over the past year reached 1.13 million, or about 31.47 percent of net job creation. This means that during 2024–2025, the “formal share of new jobs” was around 31.47 percent.
If the RAPBN 2026 indicator is interpreted as the proportion of new formal jobs, then the 37.95 percent target means an increase of about 6.48 percentage points compared to last year’s realization. Assuming total new employment remains similar to last year (3.59 million), the target implies about 1.36 million net formal jobs; there is a gap of around 233 thousand jobs that must be closed. The target is still realistic, but will require serious effort.
A Turn Away from Omnibus Law?
Institutionally, this new indicator appears to signal a shift away from the Omnibus Law on Job Creation (Law No. 11 of 2020). Literature suggests that several provisions of the Job Creation Law reduced worker protections in the name of labor market flexibility, while repositioning labor norms from the law level to executive regulations, potentially making protections easier to weaken in the future.
According to Mahy (2021), the law removed or reduced several labor protections related to fixed-term contracts (PKWT), outsourcing, wage setting, layoffs, severance pay, leave, and working hours. Sectoral impact studies (Sanders et al., 2024) identify reduced safeguards for the environment and labor/farmers’ rights, increasing the risk of low-wage and precarious employment. Meanwhile, ILO (2025) findings in the garment sector show increased use of fixed-term contracts, limited access to employment security programs, and weakened wage protections—illustrating how flexibility can reduce job quality if not balanced with safeguards.
The 2026 budget document states that formal jobs provide income security, employment stability, and additional benefits such as social security and retirement protection. This is somewhat ironic, because in practice formal employment in Indonesia does not always guarantee these benefits.
BPS classifies formal workers based on employment status. Workers classified as “employees” or “assisted entrepreneurs with permanent workers” are considered formal. However, according to the ILO (2018), when measured by social protection standards, up to 85 percent of Indonesian workers could still be considered informal.
This means that not all workers classified as formal by BPS actually enjoy full labor protections as defined by the ILO—such as employer-paid social security contributions or access to paid leave and sick leave.
Therefore, improving the share of formal employment alone is not enough; the quality—and measurement—of formality must also be improved.
Demographic Bonus Potential
So where should policy focus? Encouraging formalization of ultra-micro enterprises in the short term is difficult. The fastest route to increasing formal inflows is channeling educated young graduates into formal employment and retaining them.
Gen Z appears to be the key hope for increasing formal employment shares. Studies by Pratomo and Manning (2022) and Sugiharti et al. (2022) show that expansion of formal employment in Indonesia is closely linked to educated young workers entering the labor market, while transitions from informal to formal sectors remain relatively limited.
Gen Z is the largest generation, accounting for 27.94 percent of the population (2020 Census). In the labor market, the 15–24 age group is projected at around 21.77 million in 2025, while the 25–29 age group is around 17.45 million—showing a large and stable pipeline of young workers.
However, unemployment among youth remains high. In February 2025, the national unemployment rate was 4.76 percent, but for ages 15–24 it reached 16.16 percent—nearly three times higher. This indicates that entry-level formal jobs are still insufficient or mismatched.
Ultimately, the 37.95 percent target for formal job creation is commendable. But it must align with the demographic bonus. Policy steps include expanding entry-level formal jobs, ensuring smoother transitions from internships to permanent contracts, incentivizing conversion from fixed-term to permanent employment, and subsidizing social security contributions in the first 12 months of work.
The hope is that the government can achieve this target so that step by step, Indonesia moves toward growth that nurtures life while strengthening those who are fragile.
