Indonesia’s Labor Market Dilemma: Why Poverty Forces People to Keep Working Post-Pandemic

Multitech Publisher Senin, September 21, 2026
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FORMOSA NEWS - Jakarta - Indonesia’s post-pandemic economic recovery between 2020 and 2024 has revealed a unique phenomenon in the national labor market. While the national economy experienced positive growth, high unemployment rates discouraged job seekers, whereas high poverty levels actually forced working-age populations to continue working simply to survive.

These findings were published in a recent study authored by researchers Hermawan Febriansyah and Hendry Cahyono from the Department of Economics, Faculty of Economics and Business, Universitas Negeri Surabaya. Published in September 2026, the research analyzes the relationship between the Open Unemployment Rate (OUR), the Poor Population, and the Labor Force Participation Rate (LFPR) across 34 Indonesian provinces.

The Jobless Recovery Phenomenon and Economic Pressures

Post-pandemic, Indonesia experienced a rapid overall economic recovery, but labor absorption in the job market moved relatively slowly. Known as a "jobless recovery," this phenomenon occurs when Gross Domestic Product (GDP) growth does not automatically translate into adequate job creation.

At the same time, economic pressures stemming from poverty continue to restrict access to quality education, healthcare, and decent employment. This dual constraint has significantly shifted labor supply behavior across regions.

Straightforward Methodology Based on National Data

To examine these dynamics, the research team at Universitas Negeri Surabaya adopted a quantitative method using panel data regression analysis. Secondary data was collected from official publications of the Central Statistics Agency (BPS) spanning 2020 to 2024 across 34 provinces.

Through statistical evaluation utilizing the Fixed Effects Model (FEM), the study assessed how fluctuations in unemployment and poverty drive decisions to participate in or withdraw from the labor market.

Two Key Findings in Indonesia's Labor Market

The statistical analysis revealed two opposing impacts of unemployment and poverty on labor force participation in Indonesia:

  • Unemployment Triggers the "Discouraged Worker Effect": The Open Unemployment Rate (OUR) demonstrated a statistically significant negative effect on labor force participation. A 1% increase in unemployment resulted in a 5.15% decline in labor force participation. Facing scarce job opportunities, many job seekers become demotivated and ultimately exit the labor force.
  • Poverty Forces "Necessity-Driven" Labor Supply: Conversely, the number of poor individuals showed a statistically significant positive effect on labor force participation. A 1% increase in the poor population drove a 2.92% rise in labor force participation. Lacking financial safety nets or savings, impoverished individuals have little choice but to work.

Simultaneously, open unemployment and poverty levels exert a combined significant impact on labor force participation dynamics across Indonesia.

Policy Implications and the Informal Sector

The study emphasizes that higher labor force participation driven by poverty is not an indicator of a healthy job market. Instead, most impoverished workers enter the informal sector—taking low-wage or temporary jobs—primarily as a survival strategy to meet basic needs.

Consequently, the researchers advise policymakers not to rely solely on declining unemployment figures, but to focus on generating quality formal employment. Labor policy must integrate poverty reduction programs with vocational skills training to enhance workforce competitiveness.

"Rising labor force participation amid poverty reflects a necessity-driven labor supply mechanism, where remaining out of the workforce is simply not an option for impoverished households," noted Hermawan Febriansyah and Hendry Cahyono in their research report.

Author Profiles

  • Hermawan Febriansyah, S.E. – Researcher in Economics, Faculty of Economics and Business, Universitas Negeri Surabaya, Indonesia.
  • Hendry Cahyono, S.E., M.E. – Lecturer and Researcher in Economics, Faculty of Economics and Business, Universitas Negeri Surabaya, Indonesia.

Official Research Source

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