Long seen as the lifeline of the country’s economy, Indonesia’s middle class is rapidly decreasing. The number of people that belong to this category has dropped from about 57 million in 2019 to less than 48 million at the beginning of 2024. This almost 17 percent decrease leads to the emergence of risks for growth, stability, and consumer-driven industries.
The middle class is usually the source of spending, investment, and innovation. The disappearance of it is already noticeable in the economic world. Both the food and retail sectors, as well as the manufacturers, are losing in terms of purchasing power. Pizza Hut Indonesia, for example, has recently closed 20 stores and downsized staff as customers have reduced their dining out activities. The sales of cars, motorcycles, and household appliances have also been slowed down, indicating that consumers have tightened their budgets.
Labor-intensive manufacturing, which used to be the main contributor to middle-income and stable jobs, has been replaced by capital-heavy industries such as mining, nickel processing, and palm oil in Indonesia. While these industries bring in money, they provide far fewer jobs; thus, a large number of workers are either trapped in low-wage jobs or forced to move to the informal sector.
One of the major problems is the growth of the informal sector, which has turned out to be one of the defining issues. More than 50 percent of the Indonesian labor force is engaged in the informal sector, which is often characterized by instability, low wages, and a lack of social protection. Not only does this transition reduce upward mobility, but it also limits tax revenue that the government depends on to pay for development and infrastructure projects.
The shrinking of the middle class inevitably leads to a host of problems. If the number of consumers who can afford to spend on non-essential things becomes limited, the economy runs the risk of losing its growth pace. Furthermore, as this group shrinks, the gap between the rich and the poor becomes larger, which in turn causes worries about social stability. Economists warn that the country will face a revival of poverty and weakening of its long-term growth potential if it fails to take prompt action.
Business leaders and analysts have been calling on the government to respond to this situation with structural reforms that would rejuvenate the manufacturing sector, attract capital into labor-intensive industries, and improve accessibility to education and training. It is considered very important that better job opportunities in the formal labor market become the first step towards middle-class restoration in size and power.
If Indonesia wants to become a developed country in the next 20 years, it will need the middle class alive and well. Besides, if the middle class decreases gradually, the country’s general economic targets could very well be still farther away. The task at hand is to revitalize the economy’s pillars of growth by ensuring that prosperity is not merely reserved for elite sectors but rather households that keep the market demand flowing.
