Macro-Demographics and Ageing in Emerging Asia: The Case of Indonesia

George Kudrna, Trang Le and John Piggott

Abstract: We document the economic and social circumstances of older people in Indonesia, a low-income country with a population of 273 million, in the context of rapid demographic transition. We find that, in common with a number of other emerging economies in East and South East Asia, most older people in Indonesia are experiencing significant hardship, with nearly half either in poverty or vulnerable to poverty. Economic growth per se does not seem to lead to an improvement in the circumstances of these cohorts. Ongoing societal ageing suggests that this situation will become more critical in the next couple of decades. A major effort in developing effective and sustainable social protection structures to provide support to the future elderly in Indonesia is required.

Constructing an informed macro-demographic profile of an emerging economy can be a daunting challenge, but is an essential pre-cursor to evidence based social policy development focused on older cohorts. This paper draws on demographic and household survey data in Indonesia to craft a profile of older cohorts in Indonesia, within a context of changing education and labour force participation. This work has been undertaken to provide context and data for a major research effort around the development of a detailed macroeconomic model to analyse and assess appropriate social protection applications. But it has generated insights into the circumstances of older cohorts, and associated changes through time, which have value in their own right.

We report that:

• Indonesia will undergo pronounced population ageing driven by a reduction in total fertility rate. For example, the aged dependency ratio (65+/15-64) is projected to increase from less than 10% (in 2020) to over 46% in 2100. This is also attributed to an increasing life expectancy, particularly at older ages. For those at age 65, life expectancy is projected to increase by almost 20 years in 2100 (which is almost double the expected lifespan in the middle of the 20th century). Indonesia’s total population has also quadrupled to 273 million (in 2020) since 1950 and is projected to increase to 320 million in 2100. However, the annual population growth rate will become negative, reaching -0.3% in 2100 due to population ageing.
• Importantly, drawing on IFLS household survey data, this demographic transition is occurring in an economy where the large majority of the labour force operates in informal employment, not covered by a formal retirement income policy or, currently, a social pension.
• At older ages, people continue to derive their income mainly from employment, along with private transfers from their adult children and these two income sources will be impacted by fewer adult children (to provide private transfers) and longer lifespans (affecting the labour supply of older people).