Why Have 10 Million Indonesians Fallen Out of the Middle Class Since 2019?

Imagine waking up one day to realize that everything you’ve worked for—your stability, your dreams, your middle-class life—has slipped away. This is the harsh reality for millions of Indonesians, who have been pushed out of the middle class in recent years. Their stories reveal the fragility of economic progress and the devastating impact of unforeseen challenges like COVID-19 and lower demand for Indonesian products internationally. 

Let me tell you about Fatima, a single mother living in Jakarta. Just a few years ago, she was thriving—working at a travel agency, sending her children to a good school, and even saving for her own small business. But when the pandemic hit, tourism crumbled, and Fatima lost her job overnight. Her savings dried up within months, forcing her to pull her children out of private school and take on informal, low-paying work to make ends meet. She went from feeling secure to living day by day, a journey shared by millions like her.

Dig deeper: Indonesia’s Economic Recovery Hampered Due to Recent COVID-19 Challenges

The Fragile Rise of Indonesia’s Middle Class

Over the past two decades, Indonesia’s middle class has grown significantly, fueled by economic stability, increased consumer spending, and expanding access to education and healthcare. This demographic was often seen as Indonesia’s economic success story—a rising group that symbolized progress and modernity. Families moved into better housing, invested in higher education for their children, and began saving for the future.

But beneath this optimism lay a vulnerability: much of Indonesia’s middle class occupied the lower end of the spectrum, teetering just above the poverty line. A single economic shock could—and eventually did—push millions back into financial insecurity.

The COVID-19 pandemic was the first domino to fall. Industries that employed significant portions of the middle class—such as tourism, retail, and manufacturing—ground to a halt. Cities like Bali, a tourism hub, saw hotel closures, layoffs, and businesses shuttering as international travel dried up.

Take the example of Surya, a tour operator who had built a comfortable life over 15 years of work. The pandemic hit, and his income disappeared almost overnight. Surya’s family had to sell their car, withdraw their children from private school, and move into a smaller home. Their story mirrors countless others who found themselves scrambling for survival. According to reports, around 40% of middle-class families had exhausted their savings by the end of 2021.

As the economy struggled to recover, another challenge emerged: rising inflation. Prices for essentials like rice, cooking oil, and fuel soared, hitting middle-class families hard. For people like Yuni, a bank employee in Jakarta, the increasing cost of her daily commute combined with skyrocketing grocery bills meant she had to dip into her already-depleted savings.

Inflation has a unique way of eroding the middle class. Unlike wealthier groups who can absorb price hikes, or lower-income families who often receive targeted subsidies, middle-class families bear the brunt without much recourse. For many, the financial strain has been enough to push them below the threshold of middle-class security.

The pandemic also accelerated changes in the job market. Many traditional jobs were lost, replaced by opportunities in the gig economy or roles requiring advanced digital skills. However, this shift left large segments of the middle class behind. Take Nuri, a former factory supervisor whose plant downsized due to automation. With no clear pathway to upskill, she found herself working as a ride-hailing driver—earning far less and struggling to maintain her family’s middle-class status.

The rise of the gig economy has been a double-edged sword. While it provides temporary income, the lack of stability and benefits leaves workers like Nuri vulnerable to further economic shocks.

The Role of Weak Social Safety Nets

Indonesia’s social safety nets, though improving, remain insufficient for middle-class families. During the pandemic, government assistance programs primarily targeted the poorest households, leaving many middle-class families without support. This gap forced people to liquidate their assets, such as homes or vehicles, further destabilizing their financial positions.

For example, Agus, a small business owner in Surabaya, used to employ 10 workers in his clothing shop. The lockdowns forced him to shut down, and without significant government aid, he not only lost his business but also his savings. Agus’s story highlights how middle-class families often fall through the cracks of social welfare systems.

The erosion of the middle class has far-reaching implications. Politically, it has led to growing discontent with government policies. Socially, it has increased inequality and heightened tensions between different income groups. The shrinking middle class also impacts consumer spending, a critical driver of Indonesia’s economy, slowing the recovery further.

How to Reverse the Trend?

Addressing this crisis requires coordinated action from the government, private sector, and civil society. Here are key steps to rebuild Indonesia’s middle class:

1. Strengthen Social Safety Nets
   Expand welfare programs to include middle-class families, providing temporary income support during times of crisis.

2. Invest in Education and Skills Development
   Create accessible programs to help workers upskill and adapt to new job markets, ensuring they can secure higher-paying roles.

3. Support Small Businesses
   Provide low-interest loans, grants, and tax breaks to small business owners to help them rebuild and grow.

4. Control Rising Inflation
   Implement policies to stabilize prices for essential goods, reducing the financial burden on families.

5. Promote Islamic Finance Solutions
   Leverage zakat and waqf (charitable endowments) to support struggling families and foster community resilience.

Despite these challenges, there is hope. Indonesia’s resilience lies in its people—families like Surya’s, Yuni’s, and Agus’s—who continue to adapt and persevere. The rise of digital tools and entrepreneurship offers opportunities for recovery, and increased global attention to economic inequality may lead to more robust international support.

Rebuilding Indonesia’s middle class will not happen overnight, but with the right strategies and a collective commitment, it is possible to restore stability and prosperity. Because at its core, this is not just an economic issue—it’s about securing the dreams and futures of millions of Indonesians. And that is a fight worth waging.