The Demographic Bonus Trap

During this period, the productive age population (15-64 years old) is estimated to have a proportion of more than 60 percent of the total population of Indonesia, which is higher compared to the non-productive age population.

Also read: Depopulation and the Threat of Demographic Disaster

This condition causes the dependency ratio (dependency ratio) to become lower, which means that the burden that must be borne by the population of productive age is lighter on the population of non-productive age. As the proportion of the population that is able to produce goods and services increases, it is hoped that the added value produced will also be greater.

Therefore, the dependency ratio is an indicator that roughly shows the economic situation of a country. Nevertheless, this condition truly becomes a "bonus" if managed properly. If not, the productive population will not become drivers of development, but rather burdens on development.

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Employment in Indonesia

The "main” way to utilize productive forces is to provide them with employment opportunities or open up as many opportunities as possible for business. What is the current condition of the productive age population in Indonesia?

Productive-age population does not necessarily engage in economic activities. In August 2023, the Central Statistics Agency (BPS) recorded that the labor force participation rate (TPAK) in Indonesia is still at 69.48 percent. This means, almost a third or around 65 million productive-age individuals are not engaged in economic activities.

Indeed, among them is due to still being in school, but the percentage is only 24.35 percent. While the largest group is those who manage households, at 62.00 percent. The question is, why are there so many productive age population who are not included in the workforce group?

Is this a problem of demand (availability of jobs) or supply (that productive people don't want to work)? In various parts of the world, there is not a single country that has 100 percent TPAK, that is, all people of productive age work.

The question is, is Indonesia's TPAK now in line with the wishes of the productive age population?

Is it possible that this generation, especially Gen Z and Gen Alpha, are still willing to spend their lives taking care of the household?

Looking at the statistics of developed countries, Indonesia's TPAK is still considered lagging behind. The Organisation for Economic Co-operation and Development (OECD) statistics for 2022 show that for the age group of 15-64, Eslandia's TPAK is 86.6%, Netherlands' is 84.7%, Sweden's is 83.4%, Switzerland's is 83.1%, and New Zealand's is 82.5%.

In the Neo-Classical Model of Labor-Leisure Choice, it is explained that someone is willing to sacrifice valuable time to work due to their consumption needs. However, if someone has high non-labor income, who is able to meet their consumption without working, the price of the time they sacrifice becomes expensive.

Maybe this is the reason why in several developed countries, such as Belgium, South Korea or Luxembourg, TPAK is still slightly above 70 percent. This condition is certainly different from Indonesia. Perhaps only a small portion of the population of productive age has sufficient non-labor income.

This means that the low TPAK in Indonesia is caused by their failure to compete in the labor market. Tight competition is of course caused by high supply and low demand. Feeling they can no longer compete, they choose to leave the job market.

If the condition is like this now, what about during the demographic bonus era later? It would certainly not be in line with the expectations of the "demographic bonus" if many productive workers eventually drop out of the workforce.

Meanwhile, of those who are part of the workforce, some are also unable to produce output or do not produce output optimally. Based on BPS records, the open unemployment rate (TPT) in August 2023 was 5.32 percent, underemployment was 6.68 percent, and part-time workers were 24.40 percent.

Looking at the type of work, in August 2023 there were 5.21 million (3.73 percent) individuals who worked as independent farmers, 7.37 million (5.27 percent) freelance workers in non-agriculture sectors, and 18.09 million (12.93 percent) family workers/unpaid workers. These statistics indicate the fierce competition in the labor market and many of them work just to make ends meet. This condition is certainly not in line with the expectation brought by the demographic bonus.

Gen Z and gen alpha

Over the past 10 years (August 2013 to August 2023), Indonesia's TPAK has only increased slightly from 66.77 percent to 69.48 percent, and the unemployment rate has decreased slightly from 6.17 percent to 5.32 percent.

Although during that period, Indonesia's economy grew quite well, above 5 percent per year. Only in 2015 was it 4.88 percent and in 2020 it decreased to 2.07 percent due to the Covid-19 pandemic, then rose to 3.70 percent during the recovery from the pandemic.

The demographic bonus will be marked by the dominance of the millennial generation, gen Z, and gen Alpha in the world of work. This generation is more highly educated than its predecessors and was raised in an era of sophisticated information technology. Is it possible that this generation, especially Gen Z and Gen Alpha, are still willing to spend their lives taking care of the household?

Therefore, it can be estimated that the TPAK will significantly increase. As a consequence, a large growth in job opportunities is also needed. As a result, an economic growth of 5 percent per year is considered insufficient to balance the supply of workforce and prevent a surge in unemployment.

It is certainly not in line with the expectations brought by the "demographic bonus" if many productive workers end up leaving the workforce.

In labor economics, the term reservation wage is known, which can simply be interpreted as the amount of wages that causes workers to be willing to work.

With their high educational capacity and technological prowess, are Gen Z and Gen Alpha still willing to work as independent or unpaid workers, which currently make up more than 20 percent of the workforce?

The current condition shows that the highest unemployment rates are actually among those with higher education. In August 2023, according to BPS records, the open unemployment rate for groups who did not/yet attend school was only 1.51 percent, while for those who completed elementary education (SMP and below) it was 3.34 percent. Meanwhile, those who completed high school were at 8.60 percent and those who graduated from college at 5.10 percent.

For those with higher education, the job they need is not just "any job", but a decent job that ensures their future. This condition shows once again that economic growth of only 5 percent is sufficient to provide decent employment.

Also read: Demographic Bonus Time Remaining

If the desired job is not available, many Gen Z and Gen Alpha may be unemployed or some of them may choose to withdraw from the labor market and join a non-working group. If this happens, the demographic bonus will no longer be good news because it will only burden Indonesia's development.

Hardius UsmanProfessor of STIS Statistics Polytechnic