The COVID 19 pandemic has caused a negative effect on various aspects in Indonesia. At least, the pandemic has caused the closure of multiple industries and reduced of export-import activities. As a consequence, there will be slowing down in economic growth and the rising unemployment rate in Indonesia. The World Bank and Organization for Economic Cooperation and Development (OECD) estimate that in 2020 the Indonesian economy will experience a significant contraction. The World Bank predicts that Indonesia's economic growth will decline by 5.5 percent in 2020. It has meant that in 2020 there will be zero economic growth in Indonesia. On the other hand, OECD also estimates that economic growth in Indonesia will reach minus 0.7 percent in 2020. Although the World Bank and OECD predicted that there would be a drastic decline in Indonesia's economy, President Joko Widodo is confident that the Indonesian economy will soon recover in 2021. This belief supported by the World Bank statement that estimates economic growth in Indonesia will grow by 4.8 percent in 2021.
One factor that makes Indonesia's economy fast recovery is the large workforce in Indonesia. BAPPENAS estimates that in 2030 Indonesia will experience a condition called the demographic bonus. The demographic bonus is a condition where the number of productive working age (between 15 to 64 years) is higher than the total population of unproductive age. However, there is still a problem behind a large number of workers in Indonesia. According to the World Bank data, over the past decade, the unemployment rate in Indonesia has ranged from 4 to 5 percent. Compared to other countries such as Vietnam or Cambodia, which had an unemployment rate of around 2 percent, the unemployment rate in Indonesia before the pandemic was relatively high. Moreover, according to BPS data, the majority of unemployment in Indonesia is dominated by young people aged 15 to 24 years old. This condition indicates that there is a barrier to entering the labour market for young people or those who have just graduated from school.
Furthermore, COVID pandemic 19 has aggravated the unemployment rate. Unfortunately, up to present, no organization predict how much the unemployment rate in Indonesia under COVID 19 circumstances. To estimates the unemployment rate in Indonesia during the pandemic, we can use Okun's law approach. Arthur Okun is an economist who conducted a study of the relationship between economic growth and the unemployment rate in the US in 1962. At that time, Okun discovered that for every 3 percent increase in US GDP, there would be a 1 percent decrease in the unemployment rate. Base on his findings, Okun formulated Okun's law. Okun's law stated that there is a negative correlation between economic growth and unemployment rate. This hypothesis means that higher economic growth will result in a lower unemployment rate. Vice versa, the lower economic growth will respond to the higher unemployment rate. Furthermore, Okun argues that the correlation between the unemployment rate and economic growth depends on labour market conditions between countries at a time. Therefore, Okun's law conditions in each country are different.
From this point of view, we might predict that the decrease in Indonesia's economy under the pandemic will increase the unemployment rate. However, we don't know how much the decrease in the unemployment rate. To solve this problem, we can regress the economic growth and change in the unemployment rate to determine how much the decrease in economic growth will increase the unemployment rate. In this case, the author uses the data form in The World Bank. Base on the regression, we found every 1 percent increase in the unemployment rate will decrease the GDP growth of 0,0006 percent. Vice versa, every 1 percent decrease in the unemployment rate will increase GDP growth by 0.0108 percent. However, the linear equation has an R2 of 0.0072, which means that the linear equation is only able to explain 0.72 percent of the entire population. It means that there no significant relationship between changes in the unemployment rate and GDP growth. Mathematically, the calculation can be written as follows: y = -0.0057x + 0.0551. Of course, this calculation needs to be tested further in a deeper study. Because in this paper, the writer uses simple regression to see the relationship between the unemployment rate and economic growth.
Based on this mathematical calculation, we can predict the magnitude of the unemployment rate in Indonesia in 2020 will increase by 89% compared to last year. In other words, the unemployment rate in Indonesia in 2020 will reach 7.4% or even more. Compared to other countries in Southeast Asia during the pandemic, Indonesia's unemployment rate is relatively low. In general, the International Labour Organization (ILO) states that by 2020 the unemployment rate in countries in the Southeast Asia region will increase to 45%. Moreover, ILO also predicted that the number of working hours in the Southeast Asia region would decrease by 10% due to this pandemic. If the increase in the unemployment rate is not immediately overcome, this problem will be more considerable. Basically, the government has tried to reduce the unemployment rate. Training through the pre-employment card program is expected to be able to equip young workers before entering the labour market. However, the implementation of the program was deemed ineffective because not all prospective workers had a device to access the pre-employment program. Concrete but measurable action is needed to reduce the unemployment rate. Before the pandemic, the government would open many labour-intensive programs to reduce the unemployment rate. However, this kind of policy is not appropriate to be applied during a pandemic because, generally, labour-intensive programs involve many people gathering at a time.
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