Abstract
Indonesia is an emerging economy that has undergone structural change and achieved sustained growth rates that have lifted average living standards over the past three decades. Compared to advanced economies, the Indonesian population and workforce are relatively young. However, the population will age over the coming decades, and the profile will resemble that of advanced economies. Poverty and inequality are extensive, and the challenge of an aging population is that only a minority of the workforce has access to a secure post-retirement income and services that support quality aging. The challenges of an aging population and workforce are discussed in the chapter. These include the large share of workers in the informal sector and the growth of contingent work arrangements in the formal sector. Many continue to work into old age as they cannot afford to retire. Despite an increase in schooling and post-secondary education participation, the quality of education and the low investment in training has limited productivity growth.
TopIntroduction
There is a global aging trend in developed and developing countries (United Nations Department of Economic and Social Affairs, 2017). The number of people aged 60 years plus will be 2 billion in 2050, up from 1 billion in 2019. However, 80 percent of older people will live in low- and middle-income countries. As age expectancy increases, the aged population, their communities, and governments will face challenges linked to healthy aging and aging with a quality of life (Basrowi et al., 2021). However, there are significant differences between countries in diverse regions and at different development stages concerning current and future population trends. While population aging is linked to economic development, with advanced economies such as Italy and Japan facing declining populations, in the coming decades, the main source for the growth in the aged population will be in developing economies like Indonesia (United Nations Department of Economic and Social Affairs, 2017). As mortality and fertility rates decline, the United Nations Department of Economic and Social Affairs (2019) predicted that one in six people globally will be over sixty-five years old by 2050 and that the proportion of aged people in Southeast Asia will double (Chomik & Piggott, 2015). The challenges associated with an aging population include impacting state finances, increasing health costs, and providing for a dignified and active retirement that supports a quality of life. For developing economies like Indonesia, the financial challenges are acute as there is a limited social safety net to support retirees, accumulated personal savings from employment are limited, and there is limited infrastructure, especially in remote regions. In terms of the workforce, aging brings challenges such as the loss of skills as workers retire and ensuring that older workers are accommodated within the workforce through, for example, the provision of flexible employment conditions and appropriate health and safety arrangements.
Population aging in developing economies generates similar challenges to those in advanced economies, such as retirement financing, the increasing dependency ratio, and the financing of adequate health services (Dhakal et al., 2022). However, in developing economies, the informal economy and informal work are significant, and there are fewer workers with sufficient savings to finance retirement. With many small businesses, high rates of self-employment, and high levels of informal employment, aging means not retirement but continued working since retirement is not a viable option (Dhakal et al., 2022).
The United Nations Department of Economic and Social Affairs (2019) identified the links between population aging and sustainable development in its global population report. The key challenges identified were that:
“Persons aged 65 or over make up the world’s fastest-growing age group. Virtually all countries anticipate an increase in the percentage of older persons in their populations. Countries need to plan for population aging and ensure the well-being of older persons by protecting their human rights and economic security and by ensuring access to age-appropriate health care services, lifelong learning opportunities, and formal and informal support networks” (United Nations Department of Economic and Social Affairs, 2019, p. 37).
For Indonesia, the key challenges include providing infrastructure, income, and health support for an aging population. There is also the challenge of extensive poverty among the elderly and meeting their basic income needs, given their limited accumulated savings (Dhakal et al., 2022).
Unlike many advanced economies, the aging workforce challenges in Indonesia have quite different dimensions (Kudrna et al., 2022). These include the underlying demographic change that will contribute to the workforce’s average age declining in the short term, most of the workforce being employed in the informal sector, outside the standards and protections associated with formal employment. The major policy challenge is to develop effective processes to support savings to allow the elderly to age with a quality of life.
Key Terms in this Chapter
Pancasli: Indonesian state philosophy is based on five principles: faith in God, respect for humankind, nationalism, and unity, democratic government, and social justice.
Informal Sector: That component of the economy that is outside regulations and difficult to track.
Human Development Index (HDI): A measurement of a country’s development trajectory based on measures of life expectancy, schooling, and Gross National Income per capita.
Human Capital Index (HCI): Measures the extent to which a child who reaches 18 years of age has access to health and education.
Gender Equity Index (GEN): The index measures gender equity and estimates national gender gaps on economic, political, education, and health criteria.
Informal Employment: Unregulated and unrecorded employment associated with family businesses, the self-employed, seasonal, and daily work.
Dependency Ratio: The ratio of those in employment to those outside of employment, usually represented by the ratio of the 15-64 years age group (those of working age) to those outside of working age.