Full Breakdown
Indonesia’s Layoff Surge Amid Robust Growth: Trade, Fiscal Policies and Structural Challenges
7/6/2026, 1:01:38 PM
Layoff Surge Amid Strong GDP Growth
Indonesia posted GDP growth of 5.11 % in 2025 and 5.61 % in Q1 2026, yet the Ministry of Manpower recorded over 88,000 job losses in 2025 and 23,470 dismissals from January to May 2026, with manufacturing bearing the largest share.
Policy and Trade Background
A 2024 import-liberalization rule reduced tariffs, flooding the market with cheap goods that squeezed labor-intensive manufacturers. President Prabowo Subianto’s fiscal tightening cut regional transfers and added a 0.5 % income tax on SMEs with sales above Rp 500 million, increasing cost pressure.
Analysts Highlight Structural Issues
Labor economist Tadjuddin Noer Effendi of Gadjah Mada University says the layoffs reveal deep structural problems. CORE Indonesia economist Yusuf Rendy Manilet warns that rising investment is flowing into capital-intensive sectors, limiting job creation.
Growth Versus Employment Data
Investment grew 12.7 % in 2025 while employment rose only 10.4 %, pushing the ICOR above regional averages. Ministry of Manpower records 705,932 job losses from 2020-2025 and projects 8,700-12,100 further manufacturing cuts in 2026.
Economic and Social Impact
Weaker household purchasing power endangers Indonesia’s consumption-driven growth, as falling demand can trigger a feedback loop of production cuts and more layoffs. Analysts warn of rising unemployment, poverty and possible crime spikes.
Government Response
The administration cites a new Layoff Task Force to coordinate tax incentives, subsidized credit for labor-intensive firms, and tighter import oversight, but no implementation timeline is given.
Critique from Economists
Both analysts say fiscal incentives must be tied to formal job creation and that lower energy and logistics costs are needed for competitiveness. They urge a shift from consumption-led growth to targeted investment in labor-intensive sectors.
On-the-Ground View
Workers at Sritex’s Sukoharjo plant and Andor Apparel’s East Jakarta factory were photographed on their final shifts, highlighting the human toll of layoffs in textiles and apparel.
Conflicting Views and Gaps
Tadjuddin points to trade liberalization and fiscal austerity, while Yusuf highlights capital-intensive investment as the main driver. Detailed impact data on the 2024 import policy are lacking.
Verbatim Quotes
“The current wave of layoffs reflects structural problems in the economy,” — Tadjuddin Noer Effendi, Professor, Gadjah Mada University
“A decline in purchasing power will suppress demand, forcing companies to cut production, which could then trigger another round of layoffs. This cycle risks slowing economic growth over the medium term,” — Yusuf Rendy Manilet, Economist, CORE Indonesia
“As profit margins shrink, many businesses choose to improve efficiency through automation rather than expand hiring,” — Yusuf Rendy Manilet, Economist, CORE Indonesia
“Layoffs will increase open unemployment, reduce household income, weaken purchasing power, raise the risk of poverty among affected families, and potentially lead to higher crime rates,” — Tadjuddin Noer Effendi, Professor, Gadjah Mada University
Outlook and Recommendations
Economic institutions project continued job losses through the second half of 2026, especially in manufacturing. The Layoff Task Force is urged to link tax breaks to measurable job creation, offer subsidized loans for labor-intensive firms, and enforce stricter anti-dumping rules.
