Review Report on Demographics, Labour Force and Older People in Indonesia

George Kudrna, Trang Le and John Piggott

Abstract: This report documents and studies demographic and household survey data in Indonesia. The two key objectives are to provide (i) data for the calibration of the economic model that will be developed in this project; and (ii) stylized facts for the Indonesian household sector and economic behaviour of Indonesian households over their life cycle that will be closely captured by the economic model.

The focus of this report is on the demographic change, labour force and older people (and their resources) in Indonesia, using the United Nations demographic data (UN 2019) and the Indonesian Family Life Survey (IFLS) (documented by Strauss et al., 2016). In this report, “older people” can be thought of as those 50 and above.

We show 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 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 majority of the labour force operates in informal employment not covered by a formal retirement income policy.

·      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).

These findings indicate a pressing need for major social policy development over the next two decades to mitigate negative social and economic implications of this demographic shift and to avert large-scale poverty among older cohorts.