Hendro Dahlan Situmorang, Jakarta – A series of government policies has contributed to Indonesia's continuing wave of layoffs despite robust economic growth, highlighting deeper structural weaknesses in the country's labor market, according to a labor economist from Gadjah Mada University.
Tadjuddin Noer Effendi, a professor at the Yogyakarta-based university, argued that Indonesia's 5.61% economic growth in the first quarter of 2026 has not translated into stronger job creation as businesses grapple with automation, technological change, and persistent global economic uncertainty.
"The current wave of layoffs reflects structural problems in the economy," Tadjuddin said, adding that growth alone cannot generate employment without stronger investment in labor-intensive industries.
He identified the government's import liberalization policy introduced in 2024 as one of the factors that weakened domestic manufacturing. Although the policy has since been replaced, he said it triggered a surge in imported goods that eroded the competitiveness of Indonesian manufacturers, particularly labor-intensive sectors such as textiles, garments, electronics, and ceramics.
According to Tadjuddin, declining competitiveness forced many manufacturers to reduce production and cut their workforce to contain operating costs.
He also argued that President Prabowo Subianto's fiscal austerity measures have hurt the hospitality industry by sharply reducing government spending on official travel, meetings, and hotel accommodations.
"The reduction in transfers to regional governments has led local administrations to cut spending on meetings and lodging, reducing hotel revenues and contributing to layoffs in the hospitality sector," he said.
Tadjuddin further criticized the government's decision to impose a 0.5% income tax on micro, small, and medium-sized enterprises with annual sales exceeding Rp 500 million (around $27,800), arguing that the policy places additional pressure on a sector that remains Indonesia's largest source of employment.
He described the country's current economic expansion as consumption-driven rather than investment-led, with government spending – including the disbursement of annual bonuses to civil servants – playing a larger role than productive investment capable of generating significant employment.
According to Tadjuddin, Indonesia also needs stronger industrial investment to reduce its reliance on household consumption, which accounts for more than half of gross domestic product.
He added that weakening purchasing power among middle-income households has become increasingly evident in softer consumer price inflation, which he said reflected slowing domestic demand.
Beyond domestic policies, Tadjuddin said global developments have also weighed on employment. He pointed to the prolonged Russian invasion of Ukraine, which has affected Indonesia's exports, and heightened tensions between the United States and Iran earlier this year that pushed up global energy prices and increased production costs for energy-intensive industries such as ceramics.
He argued that unless Indonesia attracts more investment into labor-intensive manufacturing while improving the competitiveness of domestic industries, layoffs are likely to remain a persistent challenge despite continued economic growth.
Source: https://jakartaglobe.id/business/ugm-professor-links-mass-layoffs-to-trade-and-fiscal-policie