Economic Factors
There are various factors that lead to the high number of NEETs in Indonesia. The two primary ones are low competitiveness and the widening youth skills gap. In terms of competitiveness, Indonesian youth are still lagging far behind their peers in neighboring countries.
The World Bank’s Human Capital Index (HCI), an annual measurement estimating which countries are best in mobilizing their human capital, as well as the economic and professional potential of the citizens, put Indonesia far below Malaysia, Thailand and Vietnam. Indonesia’s HCI score stagnated at 0.54 from 2017 to 2020, while Vietnam had reached 0.69. This despite the fact that Indonesia used to be more advanced economically than Vietnam.
Furthermore, based on the Program for International Student Assessment (PISA) – which assesses student performance in mathematics, reading and science to measure the extent to which students can use what they learned in and out of schools for their full participation in society – Indonesian students also scored lower than those in other countries. A low PISA score shows that the learning crisis in basic education is quite acute. The students are already less competitive, even while they are still at school.
With regard to higher education, good universities are still mostly concentrated in urban areas. Rural communities often have to pay additional costs to live outside their regions if they wish to pursue higher education. As a result, many cannot afford to attend colleges/universities. This consequently create a skills gap between the two cohorts. BPS data shows that gross higher education participation rate in urban areas is 37.4 percent, versus 22.04 percent in rural areas. With current tuition fees increasing by more than 100 percent, their competitiveness will be even lower. (FIGURE 4.)
The second problem is the academia-industry mismatch. This is a classic problem where the supply of labor does not match the needs of the industry. This eventually reduces the competitiveness of young people in Indonesia and consequently impacts national economic growth. The main cause lies in an outdated curriculum. As a result, graduates do not acquire sufficient technical skills which allow them to thrive in the job market. For example, the information technology (IT) sector requires specialized skills such as programming and data analysis, but many educational institutions still teach basic concepts without providing adequate practical training. As a result, more than 60 percent of financial technology companies admit that they are facing a shortage of competent human resources.
Another factor is the lack of cooperation between educational institutions and companies. Industry often does not provide adequate input on the skill sets they require, resulting in a mismatch between what is taught on campus and what is needed in the workplace. As a result, graduates often do not have the skills desired by companies, which ultimately results in high unemployment rate among youth.
The educational mismatch that often happens is the so-called horizontal mismatch, where the level of an employee’s qualification is of the correct level for the job, but the type of qualification is not. A typical example would be a person with a degree in engineering working in a job that requires no engineering knowledge at all (Mahuteau et al, 2014). In 2022, the horizontal mismatch rate reached 33.5 percent. However, in the medium and long term, this condition could result in an imbalance in supply and demand for labor in one or several fields. Worse, it can lead to an economic slowdown.
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Low-skilled Labor Trap
As mentioned at the beginning, Indonesian youth are at risk of falling into a “low-skilled labor trap”. The role of government and the private sector play a key role in preventing this from happening. From the Government side, it can increase access to education in rural areas by establishing new universities in regencies/municipalities. The Government should also reduce the prevailing single tuition fees which has been a roadblock to young people obtaining higher education qualifications.
Next, the private sector can collaborate with educational institutions to develop effective and relevant curriculums. This synergy will make vocational education institutions the preferred recruitment sources for highly skilled, competent workers. Moreover, the private sector can expand internship and training programs for youth, especially those in rural areas, to help bridge the gap.
Through joint efforts involving different parties, it is hoped that the mismatch can be addressed, so Indonesian youth can be more competitive in the job market and contribute more significantly to the country’s economic development. This will eventually reduce the number of NEETs, a prerequisite in achieving the Golden Indonesia Vision 2045. (Nailul Huda)