Jakarta, ThedailyID — Improvements in Indonesia’s labor market, reflected in declining unemployment and a smaller share of informal workers, are playing an important role in strengthening the country’s economic structure. To maintain this momentum, stronger alignment between education and industry needs is seen as essential to improving the quality of workforce growth.
An analysis by the economist team of Bank Mandiri through the Mandiri Institute finds that progress in the labor market should be accelerated by reinforcing the link and match between education and industry demand to boost productivity. This approach is considered strategic to ensure faster economic growth supported by strong human capital.
Bank Mandiri Chief Economist Andry Asmoro said Indonesia’s open unemployment rate fell to 4.85 percent in August 2025, down six basis points from a year earlier. The share of informal workers also declined to 57.8 percent in 2025 from 58 percent in 2024, indicating better job opportunities and an improving employment structure in the post-pandemic period.
However, the Mandiri Institute study notes that the labor market still faces challenges in matching education levels with job requirements. A mismatch occurs when workers are either overeducated or undereducated for their roles, which can limit productivity gains and wage growth. Asmoro said that while falling unemployment and fewer informal workers point to a healthier and more resilient labor market, sustainable progress depends on improving the quality of job creation through better skills alignment.
Based on analysis of data from the National Labor Force Survey conducted by Badan Pusat Statistik, one in two Indonesian workers experiences a vertical mismatch. In 2025, the vertical mismatch rate stood at 50 percent, improving from 51 percent in 2023. Most of the mismatch comes from undereducated or unqualified workers, who account for 32 percent of total employment, in line with the large share of the workforce with elementary education or below.
Sectorally, the highest mismatch is found in water supply and agriculture. In the water supply sector, mismatches are mainly driven by overeducated workers, while in agriculture they are dominated by undereducated workers, highlighting the need to upgrade skills. Meanwhile, public administration and financial services show a relatively higher share of overeducated employees, underscoring the urgency of strengthening job placement ecosystems so graduates’ competencies can be absorbed more effectively.
Asmoro stressed that labor policies should focus on improving job quality through integrated cooperation among education institutions, industry, and government. As a strategic partner of the government, Bank Mandiri supports workforce development through competency-building programs aligned with industry needs, including active participation in the National Internship Program and expanded collaboration with educational institutions. Going forward, the bank’s economists see data-driven policy consolidation and stronger collaborative ecosystems as key to raising labor productivity and achieving more inclusive, competitive, and sustainable economic growth.
