Ria Fortuna Wijaya, Jakarta – Indonesia has reduced unemployment to its lowest level in more than three decades, but experts say the country's next labor market challenge is creating higher-quality jobs and ensuring university graduates possess the skills employers need.

The Central Statistics Agency (BPS) reported this week that the unemployment rate fell to 4.65% in May, the lowest since 1994. Despite the improvement, about 1.03 million of Indonesia's 7.22 million unemployed are diploma or university graduates.

Center of Reform on Economics (CORE) economist Yusuf Manilet said the headline figure should be interpreted alongside job quality indicators, as international standards classify anyone working at least one hour a week as employed.

"The decline in unemployment has been driven more by an increase in vulnerable and low-productivity jobs than by the creation of stable formal employment," Yusuf told Jakarta Globe.

He noted that informal workers still account for 59.3% of employment, while around 10.8 million people remain underemployed. Long queues at job fairs and continued layoffs also suggest labor market pressures have yet to ease.

Yusuf described the government's National Internship Program as "a good bridge" from education to employment. Around 30% of participants are hired as permanent employees, while more than 60% receive job offers or follow-up employment opportunities. However, he said the program's target of about 150,000 participants this year remains small compared with the number of graduates entering the job market.

Deputy Higher Education, Science and Technology Minister Fauzan said the figures highlight a persistent mismatch between higher education and labor market needs.

He warned that Indonesia continues to produce what he described as "educated unemployment," noting that about 1.1 million university graduates were unemployed last year.

According to Fauzan, many graduates enter what he called an "ambiguous world" in which they possess academic qualifications but lack the practical competencies required by employers.

Speaking at a recent discussion at the University of Indonesia, he said some universities continue to rely on outdated teaching methods that are no longer aligned with industry demands.

"Universities say their graduates are job-ready, but employers often see them as only ready to be trained. As a result, companies must devote additional resources to retraining new recruits," he said.

Qisha Quarina, an economist at Gadjah Mada University, said policymakers should look beyond headline employment figures and focus on whether Indonesians are finding decent and productive work.

"The labor market problem is not solved simply because someone has a job. We need to look at what kind of work they have," she said.

While internship programs can help narrow the skills gap, Qisha said they cannot ensure permanent employment without stronger labor demand.

"Improving labor supply alone is not enough. If companies are shutting down or investment is leaving Indonesia, workers with the right skills still will not be absorbed," she said.

She argued that labor market performance should ultimately be measured by adequate wages, social protection, workplace rights, and long-term job security – not by a declining unemployment rate alone.

Official data also point to structural challenges in Indonesia's labor market. Informal employment remains dominant, with 87.88 million Indonesians working in the informal sector, compared with 60.31 million in formal employment.

Among the country's employed population, 98.98 million people, or 66.8%, worked full-time as of May. Another 38.42 million people (25.93%) were employed part-time, while 10.79 million were classified as underemployed, up by about 59,000 from February.

BPS data show Indonesia's working-age population reached 220.23 million in May, an increase of 689,000 from February. Of that total, 155.41 million people were in the labor force, while 64.82 million were outside it.

Source: https://jakartaglobe.id/business/indonesias-falling-unemployment-masks-deeper-labor-market-challenge