ECONOMIC

STRUCTURE OF
INDONESIA

CHAPTER
CHAPTER 33
Basically, there are four main dimensions of economic
development:
1.Economic growth
2.Reducing poverty
3.Economic Transformation
4.Sustainable development from the agrarian society to
industrial society
Structural transformation is a prerequisite for :
1. increasing people income
2. Increasing and sustaining development and growth
3. reducing poverty
Development in Indonesia has succeeded in spurring
high economic growth, which is started by changes in
the structure of the economy.

PRIMARY SECONDAR
SECTOR Y SECTOR
A STRUCTURAL TRANSFORMATION HAS
INDEED OCCURRED IN INDONESIA

 The primary sector gradually began to be displaced by the

manufacturing, trade, financial services and
transportation, and communication sectors.
 The industrialization process has taken place in Indonesia,
seen from the increasing share of GDP from the industrial
sector.
The process of changing the structure of the economy
is characterized by:
(1) the share of the primary sector (agriculture) is
decreasing
(2) the share of the secondary sector (industry) is
increasing
(3) the share of the tertiary sector (services) is
increasing
ECONOMIC
TRANSFORMATION PROBLEM
IN INDONESIA
● Economic growth in Indonesia is not balance with the
change of a labor structure
● The pace of the sectoral economic shift is faster
compared to the pace of labor shift
● The turning point for economic activity is reached
earlier than the turning point of labor
 If the transformation is not balanced

there will be a process of impoverishment and

exploitation of human resources in the primary sector.
AGRICULTURE SECTOR
CONDITIONS:
● the nature of agriculture sector is very accommodating to
employment
● the agricultural sector is forced to accommodate labor
beyond its capacity, which is three times from its ability,
it is very burdensome to the agricultural sector.
● the agricultural sector holds nearly half of Indonesia's
total workers
● The agricultural sector has also become the last
mainstay for Indonesian workers for both unskill labor
and labor skills (such as when many layoffs occur)
● the burden of very high unemployment.
The gap in the structure of the Indonesian economy

especially as a result of the low absorption capacity

of the industrial sector
(the fastest growing sector)
● The changes in the structure of production share
(GDP) that are not followed by changes in proportional
share of labor absorption will cause :
1. the buildup of labor in one sector.
2. the more imbalance of productivity
3. the more imbalance of income between workers in
the agricultural and industrial sectors.
IMPACT OF THE LOW LABOR ABSORPTION
CAPACITY OF THE INDUSTRIAL SECTOR :

● the lowest level of per capita income in agricultural

sector than other sectors.
● high unemployment rates and low labor productivity
in agricultural sector
● high proportion of poor people in the agricultural
sector and in rural areas in general.
STRUCTURAL
TRANSFORMATION PROBLEM
:●
difference of the share of value added from each
sector
● In the agricultural sector, there was a decline in the
share of added value faster than the decline in the
share of labor.
● In contrast, in the industrial sector, the increase in the
share of added value is faster than the increase in the
share of labor
● A structural transformation has indeed occurred in
Indonesia, where the primary sector gradually began
to be displaced by the manufacturing, trade, financial
services and transportation, and communication
sectors. The industrialization process has taken place
in Indonesia, seen from the increasing share of GDP
from the industrial sector.
 The problem is the improvement of the quality of
human resources is not followed by the ability of the
Indonesian government to create employment
opportunities in accordance with the qualifications of
improving the quality of human resources.

 This phenomenon can be seen from the number of

unemployed people with secondary and higher
education levels and even with undergraduate
education.
● It turns out that in the agricultural sector itself, there has also
been a change in the economic structure between sub-sectors
which is not balanced with changes in the structure of the labor
absorption share
● This means that the current labor load in the agricultural sector
is not distributed evenly in each sub-sector, where almost all of
them are borne by the food crop sub-sector, so it is not
surprising that the family conditions of food crop farmers are
increasingly alarming.
POLICIES TO SOLVE THE
IMPACT OF CHANGES IN
INDONESIA'S ECONOMIC
STRUCTURE :
1. the development of rural-based industries,
● to overcome the accumulation of labor in the agricultural sector
which are generally located in rural areas
● to absorb the excess labor
● to bring added value to agricultural products.
● So the process of accelerating impoverishment in the
agricultural sector can be slowed down.
● The development of agricultural technology, especially in areas
with excess labor, should be directed to labor-intensive
technological innovations, so that the problem of excess labor in
the area can be reduced.
POLICIES TO SOLVE THE
IMPACT OF CHANGES IN
INDONESIA'S ECONOMIC
STRUCTURE :
2. The development of agricultural technology
 especially in areas with excess labor, should be directed to labor
intensive technological innovations, so that the problem of
excess labor in the area can be reduced.
3. There is a need for industrial restructuring in
Indonesia
 the type of education that must be developed
 the labor qualifications must be adapted to the needs of
the labor market, especially the labor market in the
industrial sector
 to reduce many unemployed with undergraduate
education levels
POLICIES TO SOLVE THE
IMPACT OF CHANGES IN
INDONESIA'S ECONOMIC
STRUCTURE :
4. Increase the government budget of investment
in the
agricultural sector
the transformation of the labor force is relatively more
responsive to changes in employment opportunities in
the agricultural sector compared to changes in
employment opportunities in the industrial sector and
services.
BPS (2018) :
Total Working Population in First Quarter of 2018 was 127.07 Million
there are three economic sectors that have the most labor :
1. The Agriculture, Forestry and Fisheries sectors have a
percentage of 30.46 percent or 38.70 million people.
2. The Trade sector amounted to 18.53 percent or as many as
23.55 million people.
3. The Processing Industry sector amounted to 14.11 percent or as
many as 17.92 million people.
 BPS noted that the economic growth rate in the first quarter of
2018 grew 5.06 percent
 the agricultural sector which is the base sector in Indonesia
gave unexpected performance.
 This condition occurs because the agricultural sector is unable
to show exciting growth in the economy.
 The sector was only able to grow by 3.14 percent in Quarter I-
2018, or below the previous period which was able to grow 7.15
percent