Creating Jobs for Indonesia's Youth: Five Charts That Matter

IMF News, February 7, 2018

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Publication date: February 7, 2018.
Key message: With a young and growing workforce, Indonesia needs to step up reforms to boost growth and create more quality jobs.

Indonesia's growth projection for 2018: 5.3 percent.
Growth has stabilized at around 5 percent since 2014—about 0.7 percentage points lower than in the previous decade.
Median age: 28.
Working-age population definition and projection: ages 15-64; the share of the working-age population is projected to continue to increase as a share of total population until 2030.
Implication: A young and growing workforce will require more and better-quality jobs to reap the demographic dividend before the population ages.

Recent growth drivers: pickup in investment and higher commodity prices.
Government infrastructure plan:
- 247 national strategic projects.
- Total cost: 32 percent of GDP.
- Areas targeted: logistics, power generation, water and sanitation, and oil refineries.
Policy emphasis:
- Continue public spending on infrastructure supported by tax revenues to ensure plan success.
- Infrastructure development expected to spur private investment, raise potential growth, and accelerate job creation for youth.

Identified constraints:
- Administrative hurdles such as multiple required licenses and permits.
- State control and entry barriers, particularly in the power and transport sectors.
- Trade and foreign direct investment restrictions.
- Conflicting regulations across ministries and local governments.
Policy recommendations:
- Reduce administrative hurdles to economic activity.
- Reduce state control and entry barriers in key sectors.
- Lower trade and foreign direct investment restrictions to boost competitiveness and export growth.
- Improve coordination among ministries and local governments to avoid conflicting regulations.

Education:
- Priority: improve education quality to promote employment opportunities.
- Suggested approach: improve efficiency of spending by strengthening the link between compensation and performance in the education sector.
- Use savings and additional resources to expand access to quality education, especially in rural areas.
Labor regulation:
- Streamline stringent job protection, including dismissal procedures and severance payments.
- Improve vocational training and job placement services.
- Expected outcomes: promote youth employment and reduce reliance on short-term contracts.

Source: Creating Jobs for Indonesia's Youth: Five Charts That Matter, February 7, 2018.