Indonesia's labor market is sending mixed signals. Official data show unemployment declining, yet claims for unemployment and old-age benefits are surging, while job seekers now spend nearly 20 months on average searching for work. The contradiction raises a broader question: Is Indonesia’s labor market improving, or are conventional unemployment statistics failing to capture growing pressures beneath the surface?

Statistics Indonesia (BPS) reported an unemployment rate of 4.68 percent in February 2026, equivalent to around 40,000 fewer unemployed individuals than a year earlier. In contrast, the Workers Social Security Agency (BPJS Ketenagakerjaan) recorded a sharp increase in claims for old-age benefits (JHT) and unemployment benefits (JKP) during the first quarter of 2026, rising by 14.1 percent and 91 percent year-on-year, respectively. At the same time, a survey by the Institute for Economic and Social Research (LPEM) at the University of Indonesia (UI) found that job seekers need an average of 19.8 months to secure employment.

The unemployment rate published by BPS therefore provides only a partial picture of labor market conditions. Indonesia follows the International Labour Organization's (ILO) definition of employment, under which a person is considered employed if they work at least one hour during the reference week. While this definition is internationally accepted, it does not necessarily reflect whether employment provides sufficient income to sustain a decent standard of living.

The composition of employment also raises concerns. The share of workers employed in the formal sector declined slightly from 40.6 percent in February 2025 to 40.58 percent in February 2026. This continues a trend that emerged during the COVID-19 pandemic, when formal employment contracted and has yet to fully recover. Since February 2020, the labor force has expanded by 12.3 percent, while informal employment has grown by 18.5 percent.

By comparison, formal-sector employment increased by only 5.1 percent over the same period, indicating that the creation of formal jobs has failed to keep pace with labor force growth, particularly as Indonesia enters a period in which the working-age population accounts for an increasingly large share of the demographic structure.

The growing reliance on informal employment has important implications for worker welfare. Informal workers are generally less likely to receive social protection, employment insurance, minimum wage guarantees and legal protections. As a result, a larger informal workforce increases the risk that workers earn income below a decent living standard despite being classified as employed.

At the same time, finding a job is becoming increasingly difficult. According to LPEM UI, the average job-search duration in Indonesia now approaches 20 months. Educational attainment plays an important role in this process. High school graduates face the longest average job-search period, at around 21 months, compared with 16.7 months for diploma holders and 17.2 months for university graduates. Unsurprisingly, high school graduates account for the largest share of total unemployment, at 28 percent.

However, the situation is also worsening among university graduates. Their share of total unemployment increased from 13.87 percent in 2025 to 14.27 percent in 2026. This trend highlights a growing mismatch between educational attainment and labor market demand, suggesting that a university degree alone is no longer a guarantee of employment.

One factor that appears to improve employability is practical work experience. LPEM UI found that individuals with internship experience generally secure employment faster, requiring an average of 17 months compared with 20 months for those without such experience. The finding underscores the importance of complementing academic education with practical skills and industry exposure, enabling graduates to better meet labor market requirements.

Ultimately, improving employability is only part of the solution. Sustainable improvements in labor market outcomes require stronger investment and job creation. Indonesia needs to attract investment that generates productive formal-sector employment rather than relying on low-quality and vulnerable jobs. The urgency of this challenge is reflected in the recent wave of layoffs. As of mid-2026, 23,470 workers had lost their jobs, including 8,045 in May alone.

These developments should serve as a warning to policymakers. A declining unemployment rate may create the impression of a healthy labor market, but broader indicators suggest a more fragile reality. Rising benefit claims, persistent layoffs, lengthy job-search periods and the growing dominance of informal employment all point to underlying weaknesses in the labor market.

The trend also raises important questions about whether Indonesia is fully capitalizing on its demographic dividend or risking a demographic burden, as a growing workforce is not being matched by sufficient quality employment opportunities. Without stronger investment, higher-quality job creation and better worker protection, household incomes will remain under pressure, ultimately weighing on consumer spending and limiting Indonesia’s long-term economic growth.