Indonesia's Booming Gig Economy Means Big Tradeoffs for Workers

(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 percent 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.

Indonesia's Booming Gig Economy Means Big Tradeoffs for Workers

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 2 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 Southeast Asia’s biggest economy, home to the world’s fourth largest 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.

Indonesia's Booming Gig Economy Means Big Tradeoffs for Workers

Indonesia is enjoying its lowest jobless rate in 20 years -- it fell to 5.1 percent in February -- yet more people are working fewer hours and private consumption has been subdued.

Indonesia's Booming Gig Economy Means Big Tradeoffs for Workers

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 labor law protections, and don’t pay tax. That’s almost 60 percent 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 $120 billion a year within the next decade, according to McKinsey & Co., a consulting firm. The trade off may be lower wages, 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 percent a year, but that’s below historical averages and well short of the 7 percent targeted by President Joko Widodo. The government’s latest projection is for growth of 5.2 percent for this year.

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

Indonesia's Booming Gig Economy Means Big Tradeoffs for Workers

The 30 percent underemployed in Indonesia compares with 17 percent in the Philippines and 8.5 percent 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.

Indonesia's Booming Gig Economy Means Big Tradeoffs for Workers

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

Indonesia's Booming Gig Economy Means Big Tradeoffs for Workers

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 two-month-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.

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 ($567 million) 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.

Indonesia's Booming Gig Economy Means Big Tradeoffs for Workers

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.

©2018 Bloomberg L.P.