Indonesia Sets Ambitious Job Creation and Formalization Targets for 2027, Bolstering Economic Resilience

Jakarta, Indonesia – September 29, 2026 – In a significant move aimed at enhancing the quality and stability of its labor market, the Indonesian government and the House of Representatives (DPR RI) have officially agreed upon ambitious targets for new job creation and the formalization of the workforce by 2027. The consensus reached stipulates the generation of 2.57 million to 3.49 million new jobs, coupled with a substantial increase in the proportion of formal workers to 40.81 percent. This strategic initiative underscores a shift in national economic policy, moving beyond mere unemployment reduction towards fostering high-quality, legally protected employment that offers robust social security benefits.

The announcement, made during the 7th Plenary Session of the DPR RI for the First Session Period of the 2026-2027 Sitting Year, signals a concerted effort to leverage the nation’s robust economic growth and substantial state budget to uplift the welfare of its citizens. Leaders emphasized that a resilient economy must translate into better opportunities for its populace, especially amidst an increasingly volatile global economic landscape.

A Pivotal Agreement: The Path to Quality Employment

The agreement reached between the executive and legislative branches of Indonesia’s government is more than just a numerical target; it represents a fundamental reorientation of the nation’s labor market strategy. For years, Indonesia has grappled with a significant informal sector, which, while providing immediate livelihoods, often lacks the security, benefits, and legal protections inherent in formal employment.

Setting Ambitious Targets for 2027

The headline figures are compelling: 2.57 million to 3.49 million new jobs by 2027. This broad range accounts for various economic scenarios but consistently points to a substantial expansion of employment opportunities. More critically, the target of increasing formal worker proportion to 40.81 percent from the current 37.09 percent (as of May 2026, according to the Central Statistics Agency or BPS) highlights a deliberate policy thrust. This incremental shift, though seemingly modest in percentage points, translates into millions of workers transitioning from precarious informal arrangements to more stable, secure formal roles.

The emphasis on formalization is not arbitrary. Formal employment typically entails adherence to labor laws, minimum wage regulations, social security contributions (such as health insurance and old-age benefits), and clear contractual agreements. These elements are crucial for building a resilient workforce capable of withstanding economic shocks and contributing to long-term national development. The government’s commitment to these targets reflects a recognition that sustainable economic growth must be inclusive and provide equitable opportunities for all segments of the workforce.

The Rationale Behind Formalization

Chairman of the DPR RI Budget Agency (Banggar), Said Abdullah, articulated the profound rationale behind this policy pivot. He stated that with the colossal expenditure from the state budget, merely reducing unemployment rates is no longer sufficient. The impact of state spending must extend to improving the quality of jobs available to Indonesians. "Serapan tenaga kerja harus dibarengi dengan kualitas pekerjaan yang lebih baik, mencakup pemberian jaminan sosial, jaminan hari tua, serta hubungan ketenagakerjaan yang mendapat perlindungan hukum," Said Abdullah explained, emphasizing the necessity for social security, old-age benefits, and legally protected employment relationships.

This perspective aligns with global best practices that link formal employment to poverty reduction, improved income distribution, and enhanced social cohesion. Workers in the formal sector are more likely to have access to training and skill development programs, contributing to higher productivity and competitiveness for businesses. Furthermore, a larger formal sector expands the tax base, providing the government with more resources to invest in public services and infrastructure, thus creating a virtuous cycle of development.

The Deliberations: A Chronicle from Senayan

The announcement was the culmination of extensive deliberations and consensus-building between Indonesia’s executive and legislative branches, reflecting a unified approach to addressing critical economic and social challenges.

Parliamentary Debate and Consensus

The 7th Plenary Session of the DPR RI, held on Tuesday, September 29, in the Parliament Complex, Senayan, Jakarta, served as the formal platform for this crucial agreement. Said Abdullah, a key figure in the parliamentary budget oversight, delivered a compelling address outlining the strategic imperatives driving the new targets. His speech underscored the Parliament’s commitment to ensuring that the nation’s economic progress translates into tangible improvements in the lives of ordinary citizens. The unanimous approval of these targets by the plenary session signifies a strong legislative backing for the government’s economic agenda.

Abdullah’s remarks highlighted the collaborative spirit between the government and DPR RI, emphasizing that the decision to prioritize formal employment was a shared vision. "Itulah sebabnya kami menyepakati agar proporsi lapangan kerja formal semakin membesar dan secara gradual menggeser proporsi tenaga kerja informal," he asserted, signaling a deliberate and gradual strategy to transform Indonesia’s labor market structure. This long-term vision aims to create a more resilient and equitable society, reducing vulnerabilities often associated with informal work.

Fiscal Commitment from the Finance Ministry

Following the plenary session, Minister of Finance Suahasil Nazara echoed Said Abdullah’s sentiments during a press conference, affirming the government’s full support and commitment to achieving these ambitious goals. Suahasil emphasized that the Anggaran Pendapatan dan Belanja Negara (APBN), or the State Revenue and Expenditure Budget, would be meticulously managed and strategically deployed to foster national economic growth and provide crucial protection.

"Tadi pidato dari Bapak Ketua Banggar salah satunya menyebutkan juga pentingnya pada saat ini kita memikirkan bagaimana menciptakan employment, serapan tenaga kerja semakin formal semakin baik," Suahasil stated, reiterating the government’s focus on job creation, particularly in the formal sector. This commitment from the Finance Ministry is critical, as the APBN serves as the primary instrument for funding public programs, infrastructure development, and various economic stimulus measures that directly influence job creation and formalization initiatives. The Minister’s assurance underscores that fiscal policy will be aligned with labor market objectives, ensuring that government spending actively supports the transition towards a more formalized economy.

Unpacking the Data: Current Landscape and Future Projections

Understanding the current state of Indonesia’s labor market is crucial to appreciating the significance and challenge of these new targets. The BPS data provides a snapshot of the starting point, while economic projections outline the path forward.

The Current State of Indonesia’s Workforce

As of May 2026, the BPS reported that 37.09 percent of Indonesia’s working population was engaged in formal employment, such as laborers, employees, or civil servants. This figure indicates that a substantial majority, nearly two-thirds of the workforce, remains in the informal sector. The informal sector in Indonesia encompasses a wide range of activities, from small-scale trade and agriculture to casual labor, often characterized by irregular income, lack of contracts, and absence of social benefits.

Historically, Indonesia has struggled with a large informal sector, a common feature in many developing economies. However, successive governments have recognized the need to formalize the economy to enhance productivity, improve social welfare, and broaden the tax base. Previous efforts have included simplification of business registration, incentives for small and medium-sized enterprises (SMEs) to formalize, and expanded social security coverage. The new target of 40.81 percent by 2027 represents a concrete step in accelerating this long-term structural transformation. Achieving this would mean bringing approximately 4-5 million more workers into the formal economy, providing them with enhanced protections and benefits.

Economic Growth as a Catalyst

A key pillar supporting the feasibility of these ambitious job creation targets is Indonesia’s robust economic performance. The nation recorded an impressive economic growth rate of 5.45 percent in the first half of 2026. This performance is a testament to the resilience of Indonesia’s domestic economy, driven by strong consumer demand, government spending, and growing investment. Sectors such as manufacturing, trade, and various service industries have been significant contributors to this growth, generating demand for labor.

This sustained economic expansion provides a fertile ground for job creation. When the economy grows, businesses expand, new enterprises emerge, and demand for goods and services increases, all of which necessitate a larger workforce. The challenge, however, is to ensure that this growth is not just job-creating, but quality-job-creating. The government’s strategy is to channel this growth towards sectors and industries that naturally lend themselves to formal employment, such as high-value manufacturing, digital economy, and professional services, while also providing pathways for informal workers in traditional sectors to formalize.

The Role of the State Budget

The APBN plays an instrumental role in facilitating these objectives. Said Abdullah explicitly linked the "kucuran belanja negara yang sangat besar" (massive state spending) to the imperative of generating better quality jobs. The state budget is not merely a tool for macroeconomic stabilization but a powerful instrument for social and economic engineering.

Specific budget allocations can support job creation and formalization through several mechanisms:

1. Infrastructure Development: Large-scale infrastructure projects (roads, ports, digital networks) directly create jobs and stimulate economic activity, leading to indirect job creation in related industries.
2. Human Capital Development: Investments in education, vocational training, and skill development programs equip the workforce with the competencies required for formal sector jobs, addressing potential skill mismatches.
3. Incentives for Businesses: Tax breaks, subsidies, and simplified regulatory frameworks can encourage businesses, especially SMEs, to formalize their operations and hire workers formally.
4. Social Protection Programs: Expanding social security coverage (health, old-age, unemployment benefits) can act as an incentive for workers to seek formal employment and for employers to register their workers.
5. Digitalization and Innovation: Supporting the growth of the digital economy and innovative start-ups, which often operate with formal structures, can contribute significantly to the formalization agenda.

Suahasil Nazara’s commitment to directing and managing the APBN credibly ensures that these funds will be used efficiently and effectively to achieve the stated targets, transforming economic growth into tangible improvements in labor market conditions.

Addressing Global Headwinds and Bolstering Domestic Resilience

The ambitious targets are being pursued against a backdrop of considerable global economic uncertainty, making Indonesia’s domestic resilience all the more critical.

Navigating International Economic Volatility

Suahasil Nazara acknowledged the "tingginya volatilitas ekonomi dunia saat ini" (high volatility of the world economy), citing geopolitical tensions such as "manuver Amerika Serikat di kawasan Timur Tengah, yaitu perang dengan Iran" as a key driver. While the original article specifically mentioned US-Iran, a broader journalistic perspective would recognize that global volatility stems from a confluence of factors including ongoing supply chain disruptions, persistent inflation pressures in major economies, the lingering effects of the Russia-Ukraine conflict, and trade tensions between economic superpowers.

These global headwinds can significantly impact Indonesia’s export performance, which is a vital component of its economic growth. Disruptions in global trade, fluctuations in commodity prices, and a slowdown in demand from key trading partners can all put pressure on domestic industries. For a country aiming to boost exports, as Suahasil highlighted, a turbulent international environment presents considerable challenges. It necessitates a proactive approach to diversify export markets, strengthen trade agreements, and enhance the competitiveness of Indonesian products.

Indonesia’s Economic Fortitude

Despite these external pressures, Suahasil Nazara expressed strong confidence in Indonesia’s "ketahanan ekonomi domestik" (domestic economic resilience). He pointed to several key indicators as concrete evidence:

• Sustained Economic Growth: The 5.45 percent growth in H1 2026 demonstrates that the "roda kegiatan ekonomi terus berputar" (wheels of economic activity continue to turn).
• Healthy Current Account: A positive or manageable current account balance indicates that the country’s international transactions are stable, reducing vulnerability to external shocks.
• Strong Tax Revenue Growth: Robust tax collections are a sign of healthy economic activity and provide the government with stable resources for its development agenda.
• Controlled Inflation: The ability to keep inflation in check protects purchasing power and maintains economic stability, crucial for both consumers and businesses.

These factors collectively form a strong foundation that allows Indonesia to pursue its domestic economic agenda, including job creation and formalization, even when the global environment is uncertain. The focus on strengthening the domestic economy acts as a buffer, ensuring that the country is less susceptible to external shocks and can maintain a stable environment for investment and job growth. This resilience is what the government aims to leverage to "terus menciptakan employment tadi dan juga modal kita untuk terus bisa melakukan ekspor ke pasar dunia dan ini akan berakibat baik untuk negara kita," as Suahasil concluded.

Implications and the Road Ahead

The successful implementation of these targets will have far-reaching implications across various facets of Indonesian society and economy, though it will not be without its challenges.

Impact on Workers and Businesses

For Indonesian workers, the formalization drive promises significant benefits. Moving from informal to formal employment means gaining access to social safety nets like health insurance, old-age pensions (BPJS Ketenagakerjaan), and unemployment benefits, which provide crucial protection against life’s uncertainties. It also means more stable incomes, better working conditions, and legal recourse in case of disputes, thereby enhancing overall job security and dignity. This shift can empower workers, reduce income inequality, and lift many families out of precarious living conditions.

For businesses, particularly SMEs which constitute the backbone of Indonesia’s economy, the transition to formalization may present initial hurdles related to compliance costs, tax obligations, and administrative requirements. However, the long-term benefits are substantial. Formal businesses typically have better access to financing, can participate in larger supply chains, and enjoy greater legal protection, fostering a more stable and predictable operating environment. The government will likely need to implement supportive policies, such as simplified formalization procedures, tax incentives, and training programs for employers, to ease this transition.

Broader Economic and Social Consequences

At a macroeconomic level, a larger formal sector contributes to higher productivity, increased domestic consumption due to more stable incomes, and a broader tax base, which can fund further public investments. This strengthens Indonesia’s overall economic competitiveness and attractiveness as an investment destination. A more formalized economy also implies better data collection on labor market trends, allowing for more targeted and effective policy interventions.

Socially, the reduction of the informal sector can lead to a more equitable society, reducing vulnerability and enhancing social cohesion. It aligns with Indonesia’s long-term vision of becoming a high-income country, where the majority of its citizens enjoy decent work and a good quality of life. The emphasis on quality employment is a direct investment in the human capital of the nation, which is the ultimate driver of sustainable development.

Potential Challenges and Implementation Strategies

Achieving these ambitious targets will require overcoming several significant challenges:

1. Skill Mismatches: Ensuring that the workforce possesses the skills demanded by the formal sector will require robust vocational training and education reforms.
2. Regulatory Enforcement: Effective enforcement of labor laws and social security regulations is crucial to prevent circumvention and ensure compliance.
3. Incentivizing Formalization: Designing attractive incentives for both workers and businesses to formalize, while addressing the perceived burdens of formalization, will be key.
4. Global Economic Uncertainty: Sustained global volatility could dampen export demand and foreign direct investment, potentially impacting job creation rates.
5. Policy Coherence: Ensuring that various government ministries and agencies work in concert, with coherent policies supporting the formalization agenda, will be vital for success.

To address these, the government will likely need to implement a multi-pronged strategy encompassing:

• Streamlined Bureaucracy: Simplifying procedures for business registration and formal employment.
• Targeted Training Programs: Collaborating with industries to develop demand-driven skill development initiatives.
• Financial Inclusion: Expanding access to formal financial services for informal workers and small businesses.
• Public Awareness Campaigns: Educating workers and employers about the benefits of formalization.
• Digital Platforms: Leveraging technology to facilitate formalization processes and social security access.

Conclusion

Indonesia’s commitment to creating millions of new jobs and significantly increasing formal employment by 2027 marks a pivotal moment in its economic development strategy. By prioritizing quality employment, complete with social security and legal protection, the nation is laying the groundwork for more inclusive and sustainable growth. The strong consensus between the government and Parliament, backed by a robust domestic economy and strategic deployment of the state budget, provides a solid foundation for achieving these ambitious goals. While global economic headwinds present challenges, Indonesia’s demonstrated resilience and a clear policy direction offer optimism that this transformative agenda will uplift the welfare of its citizens and solidify its position as a growing economic power in Southeast Asia. The journey to a more formalized and equitable labor market is complex, but Indonesia appears ready to embark on this critical path.