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Indonesia’s booming gig economy means big tradeoffs for workers

A construction worker looks at the view while taking a break atop a building towering above the business district in Jakarta, Indonesia, on Tuesday, June 17, 2014. The parliament budget commission approved a revised 2014 budget deficit of 2.4 percent of gross domestic product, Chairman Ahmadi Noor Supit said in Jakarta on June 18. Photographer: Dimas Ardian/Bloomberg

Part-time work is a crucial life-line for unskilled labourers and as the number of underemployed grows, consumer spending stagnates

By Karlis Salna & Viriya Singgih / BLOOMBERG

Heru Sishandito isn’t your typical gig economy millennial. The former construction worker, 58, is a driver for Grab, a popular ride hailing service, in Bandung, the provincial capital of West Java. He likes the flexibility, but is pulling in 40% less in pay. “In the construction company, there was certainty because I could get a fixed salary,” he said. “But as a Grab driver, it depends on me.”

Indonesia’s gig economy is booming, yet there’s a debate about whether that’s necessarily a good thing for a big chunk of the nation’s workforce or the overall economy in the long-run.

A growing army of underemployed in Indonesia has risen alongside rapid growth in connectivity and e-commerce. More than 130 million people spread across the sprawling archipelago of 17,000 islands are now online, most of them via their smartphones. Less than a decade ago, there were about two million people using the Internet in Indonesia.

Underemployment has been on the rise across the world, as workers are forced from full-time jobs into part-time roles and independent contracting. In South-East Asia’s biggest economy, home to the world’s fourthlargest workforce, the trend is even more pronounced. Of the 127 million people who are working, about a third are underemployed — working less than 35 hours a week — including more than 30 million Indonesians who are locked in part-time jobs, according to official data. 

Job seekers walk through a job fair in Jakarta. The rise in part-time workers and the underemployed could help explain why consumer spending remains flat

Indonesia is enjoying its lowest jobless rate in 20 years — it fell to 5.1% in February — yet Indonesia’s booming gig economy means big tradeoffs for workers Part-time work is a crucial life-line for unskilled labourers and as the number of underemployed grows, consumer spending stagnates more people are working fewer hours and private consumption has been subdued.

Almost 75 million Indonesians are classed as informal workers — a broad category that includes casual and part-time jobs and everything from small-scale manufacturers and enterprises to street vendors and domestic servants — many of whom are in unregulated industries that fall outside labour law protections, and don’t pay tax. That’s almost 60% of the workforce.

On the upside, a growing digital sector is creating new jobs, as well as improving the lives of ordinary Indonesians, that could deliver a productivity windfall worth US$120 billion (RM490.26 billion) a year within the next decade, according to McKinsey & Co, a consulting firm. The trade off may be lowerwages, stagnant spending and far less job security for workers than full-time jobs offer.

Spending Stalls
“If you cannot solve this problem, it will limit the potential growth for Indonesia’s economy going forward,” said Andry Asmoro, an economist at PT Bank Mandiri in Jakarta.

“Okay, the unemployment rate is going down and so that should help consumption, it should help the retail sector but it’s not happening,” he said, adding that it means people are also taking less money home.

Indonesia’s economy has been growing at about 5% a year, but that’s below historical averages and well short of the 7% targeted by President Joko Widodo. The government’s latest projection is for growth of 5.2% for this year.

The rise in part-time workers and the underemployed could help explain why consumer spending — which makes up almost 60% of Indonesia’s annual gross domestic product — remains flat and why the economy is struggling to fire up.

The 30% underemployed in Indonesia compares to 17% in the Philippines and 8.5% in Australia. That a huge number of people find it tougher to find full-time jobs is in part being driven by a decline in sectors like retail and manufacturing, where there’s been a steady deterioration over time as Indonesia lost out to more efficient regional competitors like Malaysia and Thailand.

Spending by consumers — vital for the Indonesian economy — has been subdued and growing about 5% a year, while retail sales have been lacklustre, expanding a monthly average of 3.6% this year compared to more than 11% in 2016.

Sharing Economy
In Indonesia, home to more than 100 million smartphones, the nation’s sharing economy is changing the everyday lives of households on this sprawling archipelago.

When Aditia Nelwan and his wife unexpectedly found themselves out of town for the night, thoughts turned to a twomonth- old kitten that had been sleeping in their garage. “He only likes to eat fried mackerel and we’d forgotten to feed him,” said Nelwan, who works for a consultancy firm in Jakarta.

A GrabBike and a Go-Jek driver wait for orders in Jakarta. The nation’s sharing economy is changing the everyday lives of households on this sprawling archipelago

They reached out to Go-Jek on their smartphones and arranged for a motorcycle taxi driver to pick up two pieces of fish from a roadside restaurant and deliver them to the Nelwans’ darkened garage. The company, in addition to its ride-hailing service, offers access to everything from food delivery to cleaners and cream baths.

Researchers from the University of Indonesia’s Faculty of Economics and Business estimate Go-Jek contributes 8.2 trillion rupiah (RM2.32 billion) a year to the national economy through the income of its driver partners alone, while corporate partners are adding 1.7 rupiah trillion a year.

There are more than a million Go-Jek bikes across the country. The app has been downloaded more than 60 million times in Indonesia. “Go-Jek tapped consumer demand in a very simple way that no one else had before,” Go-Jek corporate affairs chief Nila Marita said.

The rise of digital-driven business models, and the part-time jobs they create, are changing the lifestyles of Indonesian consumers, but also its workers. What’s clear is that not everyone will benefit to the same degree.