Indonesia’s economic performance presents a puzzle. The country has sustained annual growth of approximately 5% while keeping poverty and unemployment relatively low, yet the benefits of this expansion are not translating into greater economic security for all households. The declining size of the middle class, sluggish wage growth, and persistent inequality suggest that stronger national economic indicators do not automatically translate into better livelihoods.

The issue is not simply how fast Indonesia’s economy grows, but what that growth enables people to achieve. Are there enough productive jobs to raise household incomes, help workers build financial security, and allow more people to improve their economic standing? These questions have important implications for Indonesia’s development trajectory, particularly its goal of becoming a high-income country by 2045.
 

Shrinking Middle Class Signals a Deeper Problem

The changing composition of Indonesia’s population offers an important perspective on these challenges. Between 2019 and 2024, the number of Indonesians classified as middle class dropped from 57.33 million to 47.85 million, a reduction of around 9.4 million. Their share of the national population also declined, from 21.45% to 17.13%.

This does not mean that all these people have fallen into poverty. Rather, many have moved down into the “aspiring middle class”—those who have moved out of poverty but remain economically insecure and vulnerable to shocks, such as inflation, illness, or job loss. When earnings fail to keep pace with household expenses, families may have to use their savings or borrow money to cover everyday needs. Such coping strategies can help them manage immediate pressures, but they may also limit their ability to invest in education, improve their livelihoods, or accumulate assets. In 2024, the aspiring middle class accounted for 49.22% and the poor 9.03% of Indonesia’s population.

These figures point to a development challenge that extends beyond poverty reduction. Moving out of poverty is an important achievement, but it does not necessarily mean that a household can withstand economic shocks or sustain improvements in its living standards. The size and security of the middle class therefore offer an important perspective on whether economic progress is creating lasting opportunities for the wider population.

Strengthening that progress requires more than maintaining aggregate growth. Workers need access to productive employment that offers adequate and more reliable earnings. Investments in human capital, accessible and high-quality public services, and social protection that responds to households’ changing needs are also essential to help people manage risks and pursue better opportunities.

For Indonesia, the next stage of development must focus on making upward mobility more durable. The objective is not only to lift people out of poverty, but also to create the conditions that allow them to build secure livelihoods and improve their economic prospects over time.
 

Employment Growth Must Translate into Better Livelihoods

Indonesia’s labor market has absorbed more workers, but the benefits of employment remain uneven. In August 2024, the number of employed people was 4.79 million higher than a year earlier, and the unemployment rate had declined to 4.91%. However, these improvements do not tell the whole story. Formal employment accounted for only 42.05% of all workers, while average monthly wages stood at Rp3.27 million after growing by 2.81% year-on-year. This was only modestly higher than the household poverty line of Rp2.80 million per month in 2024, underscoring the limited financial room many workers may have to improve their living standards.

The concern extends beyond the number of jobs available. According to a recent World Bank report, employment creation in Indonesia has been concentrated in sectors with relatively low value added, where wages may fall short of what households need to achieve middle-class living standards. Meanwhile, real wages—the purchasing power of workers’ earnings after accounting for inflation—declined by an average of 1.1% annually between 2018 and 2024. Taken together, these trends raise questions about whether employment growth is generating sufficient improvements in productivity and household welfare.

The stakes are particularly high for younger generations entering the workforce. Indonesia’s large working-age population presents an opportunity to accelerate economic development, but its potential will depend on whether new entrants can access jobs that make productive use of their abilities and provide opportunities for advancement. Without these opportunities, a demographic advantage may not translate into stronger economic performance or more widely shared prosperity.

Preparing young people for such opportunities requires closer alignment between education and the skills employers need. Indonesia’s performance in the 2022 Programme for International Student Assessment (PISA) highlights the scale of this challenge. Only 18% of Indonesian students achieved at least minimum proficiency in mathematics, compared with 69% across OECD countries. Indonesia’s results in mathematics, reading, and science also reflected persistent weaknesses in foundational learning.

Without significant improvements in learning and skills, Indonesia risks having a large working-age population without the human capital needed to drive productivity growth.
 

Making Golden Indonesia 2045 More Inclusive

Indonesia’s development priorities must evolve alongside its economy. Progress in reducing poverty and building essential infrastructure has laid an important foundation, but sustaining these gains will require a different set of drivers. Raising productivity, moving workers into higher-value activities, and expanding access to well-paying employment must become central to the country’s next stage of economic development.

These priorities are closely tied to the ambition of Golden Indonesia 2045. Reaching high-income status will require Indonesia to move beyond its current growth trajectory and develop more competitive industries, higher-value services, and stronger capabilities in digital technology and innovation. According to the World Bank, structural reforms could unlock substantial gains in economic output and labor income while supporting the creation of better jobs and the expansion of the middle class. The challenge is to ensure that these gains reach households through improved employment opportunities and rising living standards.

One potential driver is hilirisasi, or the downstream processing of natural resources. By expanding domestic processing and related industrial activities, this strategy could help build stronger industrial capabilities and create opportunities beyond the extraction of raw materials. However, higher export earnings and increased investment alone do not establish whether downstreaming delivers broad-based development. Its wider contribution should also be assessed in terms of job creation, workforce development, opportunities for local businesses, and improvements in the livelihoods of communities where industrial activities take place.

At the same time, Indonesia needs greater fiscal capacity to invest in human capital, infrastructure, social protection, and climate resilience. Its tax-to-GDP ratio was only 12% in 2023, well below the Asia-Pacific average of 19.5%. Strengthening revenue mobilization and the effectiveness of public spending will therefore be essential.

Indonesia has already demonstrated that sustained growth and macroeconomic stability can contribute to poverty reduction. The next test is whether the country can turn these achievements into lasting economic opportunities for a much wider share of its population. That means enabling more workers to access productive employment, equipping young people with relevant skills, and helping households build financial security rather than remain vulnerable to setbacks.

For Golden Indonesia 2045 to become an inclusive development endeavor rather than simply a high-income target, Indonesia must create better jobs for its young population, strengthen human capital, expand the middle class, and ensure that economic transformation benefits people across regions and income groups. The measure of success should ultimately be not only how fast Indonesia grows, but how many Indonesians can build a secure and prosperous future because of that growth.
 

Keywords: economic growth, middle class