The quiet crisis of Indonesia's shrinking middle class

Indonesia's booming economy conceals a troubling reality: its middle class is rapidly shrinking, a development that could jeopardize both the nation's economic aspirations and its democratic stability. President Prabowo Subianto has set ambitious targets for the 2027 state budget, including a growth rate of 6 percent and an unemployment rate between 4.3 and 4.87 percent. Despite impressive statistics, the true concern lies in the nature of this growth and the distribution of its benefits.

While the economy is expanding at a steady 5 percent and unemployment has hit a decade-low of 4.68 percent, the nation's wealth is not trickling down to its populace. The middle class, once the engine propelling Indonesia towards high-income status, is quietly disappearing. Between 2019 and 2023, its numbers dropped from 21.5 percent of the population to 17.1 percent. More alarmingly, the proportion of workers earning middle-class wages plummeted from 14.5 percent in 2018 to just 7.1 percent by 2025.

This is not merely a statistical anomaly; it is a clear indication of an underlying crisis. In the past five years, four out of every five new jobs have been created in the informal sector, characterized by insecure, low-paying roles with no safety nets. The typical informal worker earns just Rp 1.9 million (US$107) a month, compared to Rp 2.9 million for those in formal employment.

Consequently, university graduates are increasingly finding themselves stuck in jobs like ride-hailing or gig work, enduring longer hours while falling behind on essential expenses like housing, healthcare, and education.

The root cause of this predicament is structural. Indonesia's manufacturing sector, which traditionally provided a pathway to middle-class security across East Asia, accounted for nearly 32 percent of the country's GDP in 2002. However, by 2025, this figure had plummeted to roughly 19 percent. This deindustrialization is further exacerbated by a surge in cheap imports from China since 2023, leading to factory closures and pushing laid-off workers into precarious informal labor.

This situation mirrors Chile's paradox, where robust macroeconomic performance and declining poverty rates coexisted with deep middle-class dissatisfaction, ultimately leading to mass unrest. As a warning, Chile's experience underscores the importance of high-quality, inclusive public services for working families. Without such measures, Indonesia risks seeing its economic growth transform into a source of social unrest.

Indonesia must learn from Chile's experience and address the widening gap between economic growth and social equity before it too faces a crisis of its own.