Getting to Know the Face of Indonesia's Middle Class

Most of Indonesia's middle class is still relatively vulnerable to being "downgraded" if an economic shock occurs.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Mengenal Wajah Kelas Menengah Indonesia

KOMPAS/PRIYOMBODO (PRI)

Buyers, who are mostly office workers in the Kuningan area of South Jakarta, filled up the seats of a restaurant during lunchtime on Tuesday (27/2/2024). The middle class with limited salaries have to find ways to meet their daily increasing needs.

Middle class Indonesia plays an important role in supporting national economic growth. The number of the middle class is likely to continue to increase along with rising levels of national per capita income. Unfortunately, most of these groups are still relatively vulnerable to being "downgraded" if an economic shock occurs.

In the last two decades, the middle class in the homeland has continued to grow, with the majority of Indonesians now falling into the middle class category. This group is also often considered influential both economically and politically.

On the economic side, the large number of middle-class citizens is seen as Indonesia's potential to increase national economic scale. This group has proven to be an essential growth engine by contributing half of Indonesia's total household consumption. Although they only make up one-fifth of the total population, their consumption spending dominates the national household scale. By continuing to expand the middle class in Indonesia, it can help boost economic growth and increase the nation's welfare.

On the political side, Indonesian history also demonstrates the importance of the middle class. Starting from the era of independence, the transition from the Old Order to the New Order, to the reform movement that upholds the spirit of democracy and openness, all of it happened because of the role of the middle class who has political awareness.

Also read: Indonesia's Middle Class Finds It Hard to Get Rich, Affected by the Collapse of the Manufacturing Industry

KOMPAS/PRIYOMBODO (PRI)

Employees fill the sidewalks in the Kuningan area of South Jakarta during lunchtime on Tuesday (27/2/2024). These employees represent the Indonesian middle class, who with limited salaries strategize to meet their daily needs and save for the future.

Middle class definition

Tracing its history, the classical view of class stratification in society began in the 19th century through the theories of Thorstein Veblen and Karl Marx. Veblen, in his theory of the Leisure Class, divides society into two classes: the working class who struggle to maintain their livelihoods and the class with ample leisure time due to their wealth.

Meanwhile, Karl Marx distinguished classes of society based on control of production, namely the bourgeoisie, petty bourgeoisie and proletarian classes. The bourgeoisie are people who do not need work to earn income because they have control over ownership of capital or production factors. This group also has the power to exploit workers to gain income.

View regarding the division of classes in society then evolved in several countries, depending on the emphasis on political, economic, social, or cultural criteria. The trend of the middle class began in developed countries in Europe and America, then moved to the eastern region, including Southeast Asia.

The definition of the middle class can be determined through various approaches. One of them is through an absolute approach. This approach defines the middle class based on the amount of household income or expenditure.

One of them was put forward by Kharas and Geoffrey Gertz (2010) who defined the middle class as residents with daily expenditure between 10 US dollars and 100 US dollars per person in purchasing power parity terms. Purchasing power parity is a measure of the price of certain goods in a number of countries and is used to compare the absolute purchasing power of the currencies of the countries involved.

Abhijit V Banerjee and Esther Duflo (2007) measured the lower middle class with daily expenditures between 2 US dollars to 4 US dollars per person, and the upper middle class with expenditures between 6 US dollars to 10 US dollars per person in developing countries.

Also read: Indonesia's Middle Class, Trying to Stay Cool Even though the Salary Is Just Too Much

KOMPAS/ADRYAN YOGA PARAMADWYA

Passengers crowded the Transjakarta bus and stairs leading to the Transjakarta Slipi Kemanggisan stop in West Jakarta on Wednesday (2/8/2023). The Central Statistics Agency of Jakarta recorded that the number of people working in Jakarta reached 4.8 million people in 2022. This number consists of 3 million formal workers and 1.8 million informal workers.

Meanwhile, Sarah Boumphrey and Eileen Bevis (2013) in their book Reaching The Emerging Middle Classes Beyond Bric, using an income approach, define the middle class in several definitions, including households with an income of 50 percent to 100 percent. of the average aggregate gross income, households with consumption income of at least 10,000 US dollars per year (for developed countries), or discretionary income of more than 30 percent.

In addition to the income and expenditure approach, a different view is presented by Simon Gunn (1993 and 1997). He argues that the characteristics of the middle class are not only determined by economic conditions, but also by political and democratic characteristics.

Gunn concluded that Brunei Darussalam is included in underdeveloped civil society because it is characterized by low community involvement and participation in politics. This view indicates that although economically the people of Brunei are prosperous, they are not classified as middle class.

Indonesian middle class

Dawam Raharjo in his book Indonesian Economy: Growth and Crisis (Jakarta: LP3ES, 1987) reveals that the emergence of the middle class in Indonesia is closely related to the economic opportunities that emerged after independence. He emphasized that before independence, the concept of economic development almost did not exist.

During the Old Order, Indonesia's economic growth barely reached a significant level because the post-independence atmosphere was not conducive to development. The main focus at that time tended to be more focused on politics to strengthen the consolidation of independence.

However, the dynamics changed in the era of the New Order. The regime transition not only involved a change of government, but also indicated a significant change in economic policies. During this period, economic development became the main foundation. President Soeharto directed economic development with the principle of the Development Trilogy, which is maintaining stability, increasing growth, and paying attention to distribution.

The 1980s are considered a significant turning point in Indonesia's economic development as they produced significant changes in consumption patterns. Indonesia adopted a new economic paradigm involving deregulation and market liberalization, opening up more to the global scale.

This deregulation policy, with all its consequences, marks a change in Indonesia's orientation towards globalization. Indonesia's economic adaptation to global dynamics creates a shift in growth that was previously influenced by trade, opening up greater access to global consumer culture.

Also read: Indonesia's Middle Class Spends Their Wages on Cars and Houses

The steps of liberalization and deregulation have a significant impact on the financial, banking, and production sectors. They stimulate structural changes in the workforce, generating various job opportunities in the middle class. The growth of employment opportunities becomes the main driver for the emergence of a new middle class in Indonesia, in line with the goal of economic development.

Entering the Reformasi era, the middle class group is growing and increasing in number until now. Recently, the World Bank report titled "Aspiring Indonesian-Expanding the Middle Class" released in January 2020 stated that one in five Indonesians is a part of the middle class. This middle class is growing faster compared to other groups.

In terms of population, their number reaches 52 million people or 20 percent of the total population. The number of Indonesia's middle class has increased significantly in line with the decline in poverty levels in the past two decades.

Based on the report, there are 28 million (10.7 percent) Indonesian people who fall into the poor group. A total of 61.6 million (23.6 percent) people fall into the vulnerable group. There are also 53.6 million (20.5 percent) Indonesian people who belong to the middle class and there are 3.1 million (1.2 percent) who are classified as upper class.

The World Bank has identified five different consumer classes in Indonesia. These include the poor group, vulnerable group, moving towards middle class, middle class, and upper class.

The poor group consists of society with monthly expenditures below the poverty line or less than Rp 354,000 per person per month. The vulnerable group consists of society living above the poverty line, but at risk of poverty or equivalent to expenditures of Rp 354,000 - Rp 532,000 per person per month.

Then the group towards the middle class (aspiring middle class/AMC) consists of people who are considered not at risk of poverty, but are economically insecure. The expenditure range for this group is IDR 532,000- IDR 1.2 million per person per month.

The higher group is the middle class, where they are economically secure with expenditures ranging from Rp 1.2 million to Rp 6 million per person per month. The chances of this group becoming relatively poor are very small.

The highest group is the upper class where they are the most prosperous economically. The level of per capita expenditure is relatively high, namely more than IDR 6 million per person per month.

The World Bank report also mentioned that Indonesia's middle class is dominated by productive-aged residents who predominantly reside in urban areas. The majority of middle-class households have relatively low education levels, with the majority engaged in non-formal employment. Indonesia's middle class is expected to continue to grow with improvements in income, education, and employment.

Meanwhile, the results of the 2021 National Socio-Economic Survey (Susenas) show that 69 out of 100 Indonesians are lower middle income. Meanwhile, 22 out of 100 fall into the middle class group. The rest are upper class.

The categorization of the middle class based on monthly family expenditure data released by the Central Statistics Agency (BPS) states, lower middle class (emerging middle) if monthly family expenditure is IDR 1.5 million-IDR 2 million . For the middle class, the family spending range per month is IDR 2 million-IDR 3 million per month. Upper middle class (upper middle) if family expenses per month range from IDR 3 million to IDR 5 million.

One of the reasons for the large population of the middle class in Indonesia is the rapid process of structural transformation, namely the process of changing the economy from the agricultural sector which is labor intensive to the industrial and service sectors which are more skill-intensive< /i>.

Challenge

Although the number of middle-class citizens in Indonesia has continued to rise over the past 20 years, on the other hand, the majority of the population has not yet fully enjoyed the basic rights of human development. They also still face the possibility of economic decline.

In the BPS report entitled "Education and Health, Bridges Out of the Middle Class," a number of differences between social groups or economic classes of the population in Indonesia are mentioned. Especially for the lower middle income population, relatively few heads of household have completed higher education, namely around 30 percent and 45.67 percent have access to the internet. Furthermore, only 4.67 percent of household heads in this group use technology such as computers, laptops and tablets.

Also read: It's Difficult for the Indonesian Middle Class to Become Rich

KOMPAS/PRIYOMBODO (PRI)

The atmosphere inside the warteg filled with buyers during lunchtime in the Kuningan area, South Jakarta, on Tuesday (27/2/2024). The economic pressure on Indonesian society at the beginning of this year has become increasingly heavy with the rising prices of staple foods.

The next gap is access to social protection. Although, in general, the government health insurance program (BPJS) has reached more than 60 percent of households in all income groups, not everyone has a relatively secure assurance for their old age and personal security. Only 7.9 percent of households in the lower-middle income group have job-related assurances such as old-age benefits, pensions, severance pay, accident insurance, and office insurance. The rest have to deal with uncertainty.

Therefore, to encourage improvements in the quality of life of the Indonesian people, there needs to be an effort from the government to encourage economic progress so that it has an impact on the increasing number of middle class people. Of course, in order for the middle class to increase in number and prosperity, the government must maintain dynamic, quality economic growth. (R&D COMPAS)