How 'Formalization' May Impact Gig Economy Workers in Indonesia

Unemployment and poverty remain urgent issues in Indonesia today. As technologies continue to develop, the presence of various online platforms has significantly helped address these two interconnected problems, creating gig economy workers. However, the ’formalization’ of the digital technology based gig economy sector in Indonesia has brought its own risks and challenges for the workers involved.

Portrait of Gig Economy Workers in Indonesia

In simple terms, the gig economy refers to a labor market characterized by short-term and freelance jobs, where individuals earn income by providing services or goods based on demand. In Indonesia, the presence of gig economy workers is most noticeable among online transportation drivers and online store couriers, although freelancers in various fields have also become more common.

While gig work helps reduce unemployment and fight poverty, gig economy workers in Indonesia still face various challenges, including:

Vulnerability to uncertainty and economic shocks.
Weak social protection and welfare.
Risk of being stuck in a low-skilled labor trap.
Vulnerability to stress and long working hours.

The Impact of ’Formalization’ of Gig Workers

A Center of Economic and Law Studies (CELIOS) report reveals that with the support of digital technology advancement, the gig economy has significantly helped reduce unemployment, especially in areas where online platforms offer gig jobs. Additionally, the gig economy provides more structured work while maintaining flexibility. However, at the same time, the ’formalization’ of gig economy workers in Indonesia, which indicates a shift from informal to semi-formal, also brings various impacts. Some of them are:

Reduced benefits of the gig economy. Gig platforms have proven to significantly reduce unemployment rates in cities/districts served by gig platforms. Formalizing gig economy workers would limit the benefits of the gig economy to certain areas.
Limited poverty reduction. Gig platforms also help reduce poverty rates. With formalization, the potential of the gig economy to reduce poverty becomes limited.
Loss of time flexibility. Many gig economy workers choose this model because it allows them to balance other commitments such as studies, childcare, or even other jobs. With formalization, gig workers may be required to follow fixed and regular working hours, which could conflict with their needs and preferences.
Loss of location flexibility. When formalization requires gig economy workers to work at specific locations, this could reduce the appeal of the job, especially for those who rely on gig works to work from home or different locations.

Improving Capacity and Protection

Like workers in the informal sector, gig economy workers often lack social safety nets. They are also vulnerable to the low-wage labor trap that hinders them from prosperity. Therefore, the gig sector must prioritize empowerment and capacity building, especially for those with low education, so that they are equipped to enter more formal and economically sustainable sectors should they choose to. The report recommends various initiatives such as alternative education programs, business trainings that matches their abilities, and gig worker forums.

Additionally, the report also recommends policies that encourage industries to contribute to improving social protection for gig economy workers without burdening company operations. This can be done by promoting health insurance schemes with proportional premiums, collaborating with gig platforms to integrate automatic and affordable premium payment systems, and encouraging inclusive and open policy frameworks.

Translator: Dinda Rahmania

The original version of this article is published in Indonesian at Green Network Asia – Indonesia.

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Amar is the Manager of Indonesian Digital Publications at Green Network Asia. He holds a Master’s degree in Philosophy from Universitas Gadjah Mada and a Bachelor’s degree in Communication Studies from Universitas Sumatera Utara. He has over ten years of professional experience in journalism as a reporter and editor for several national-level media companies in Indonesia. He is also a writer, editor, and translator with a particular interest in socio-economic and environmental issues.