Authors: Grace Zefanya Octovella Situmorang & Koes Afifah Qurratuaini Putri
The problem about the middle class is that they experience many barriers in climbing the economic ladder, which makes them likely to experience stagnancy in their livelihoods. Simultaneously, they also face high vulnerability to the incidence of poverty.
Understanding the Middle Class: Definition, Importance, and Challenges
The middle class serves as a cornerstone of economic stability and social progress. In 2024, BPS data revealed that Indonesia’s middle-class population reached 47.85 million people, constituting approximately 17.13% of the nation’s total population. Additionally, the aspiring middle class, those on the verge of entering the middle-class, has grown significantly, reaching 137.5 million people, or 49.22% of the population. These figures underscore the rising prominence of the middle and aspiring middle classes in Indonesia’s socio-economic landscape, highlighting their pivotal role in driving the nation’s economic development while emphasizing the urgent need for tailored policies to address their specific challenges and vulnerabilities.
There is no one universal definition for the group “middle class”. Nonetheless, for the term class, Marxists use them similar to the meaning of groups or factions in a society. Initially, as a consequence of the capitalist system, Marx divided the classes into capital owners and the working class–with the addition of the landowners later on. Furthermore, as quoted from his book Theory from the Surplus Values, the middle class present as those who stand between the working class and the capital owner or the land owner.
As the capitalist system develops, the middle class as the supplementary part of the bourgeois-proletar society constantly grows, hence their importance. They consist of, for example, small proprietors, shopkeepers, professionals, civil servants, soldiers, and many more. Birdsall, Graham, and Pettinato (2000) refer to them as the “backbone of both the market and the democracy of the most advanced society”. Banerjee and Duflo (2008) further classified the significance of the middle class in three arguments. Firstly, the middle class foster employment and productivity growth due to emerging entrepreneurs equipped with both the capacity and the tolerance for delayed gratification. Secondly, they are central to the process of capital accumulation because they emphasize values on human capital and savings, making them the primary input for the entrepreneurial class. Thirdly, the middle class–as consumers–are the ones who are willing to raise their expenses for an upgrade in quality. They urge the quality and consumer goods; foster investment in the production process, including marketing and consumer service; and raise the overall income level in society. Afterall, this segment of class is crucial for the development of economic society.
Looking deeper into the middle class segment of the society, they showcase a particular pattern of consumption and investment behaviour. The middle class often exhibits a willingness to spend more on added quality and convenience, usually reflecting their desire for products that enhance their lifestyle. However, many within this group also experience the pressure of being a “sandwich generation,” balancing financial responsibilities not only for themselves, but also for either their parents, children, or even both (The Jakarta Post, 2024). With increased expenditures and reduced capacity to save, this further impacts their saving and spending behavior. Most of the middle class’ expenditure is similar to their income. In other words, they often live paycheck to paycheck, making them more vulnerable to economic fluctuations.
However, the practice of the middle class mentioned before could not be generalized for the whole segment. Reeves and Guyot (2018) define the middle class as everyone but the poorest and richest 20%. As the biggest proportion, the middle class comprised around 60% of the society. This distinguishes the behavior exhibited by the two ends, the ones closer to the poor and those closer to the rich, making the lower and upper middle class clearly visible.
The Mounting Pressures on Indonesia’s Middle Class
The middle class forms the backbone of the nation’s economic and social fabric, yet they are increasingly caught in a web of mounting pressures that threaten their stability and growth. In Indonesia, middle-class households are grappling with surging living costs and increasing education fees, which limit access to quality learning opportunities and perpetuate economic inequality. Compounding these financial strains are job market uncertainties and the heavy burden of the sandwich generation, where young adults are forced to support both aging parents and growing children. Many middle-class families, often with multiple dependents, face daily struggles to provide adequate sustenance, leaving little room for upward mobility or long-term planning. These pervasive challenges demand urgent and targeted intervention, as failing to address the plight of this pivotal group risks undermining broader national development and social cohesion.
The aspiring middle-class population is increasing, and the middle class bears a high consumption increase. In retrospect, the middle-class population is decreasing.
Source: Survei Sosial Ekonomi Nasional (SUSENAS) 2018–2023, processed by author
The World Bank (2019) categorizes Indonesia’s economic class into five tiers based on households’ per capita expenditure relative to the prevailing poverty line: poor, vulnerable, aspiring middle-class (AMC), middle-class, and upper-class families. Using data from the Survei Sosial Ekonomi Nasional (SUSENAS) MKP 2018, 2021, and 2023, several insights emerge. As shown in the figures above, the proportion of the aspiring middle class has shown a consistent increase, indicating an upward shift from lower economic tiers, while the proportion of the middle class has decreased, reflecting the challenges in sustaining upward economic mobility. Meanwhile, the mean per capita expenditure has grown significantly across all classes, with the middle class and upper class experiencing the largest increases. This trend suggests that while consumption is rising, likely due to higher living costs, the burden on the middle class is intensifying.
It is important to note that the population classes are measured based on the World Bank (2019) classifications, adjusted relative to the provincial poverty line for each year as specified by Badan Pusat Statistik (BPS). Variations in definitions and calculations could result in differing class sizes across these tiers.
In one of his most celebrated works on the literature of inequality, Tony Atkinson highlighted the “intergenerational inequality” phenomenon, where the inequality of outcome directly affects the equality of opportunity. In this context, outcome refers to the parents’ backgrounds, and opportunity refers to the next generation’s access to education, adequate jobs, etc. While we understand that Atkinson was somewhat concerned about individual factors, we should also consider that individuals’ difficulty accessing quality education (and decent livelihoods in general) might be attributed to other factors outside their control, such as politics. The lack of inclusivity in higher education access due to high (and increasing) tuition fees stemming from, among others, low government subsidies could affect this generation’s outcomes and then the future generation’s endeavours. This generation’s low quality of livelihoods might repeat itself for the next generation. With these possibilities in mind, ending the vicious cycle of poverty and improving the well-being of the middle class would require even more extensive efforts.
Policy Overlook: Global and Indonesia Case
Reeves (2019) stated that if we put a mark on the real income itself, the proportion of the middle class would change from time to time. Globally, the middle class proportions shrink or “hollowed out” as their proportion decreases. This also happened in Indonesia, which under the Badan Pusat Statistik (BPS) definition of middle class, only 17.1% of Indonesians fall in the category of middle class in 2024, compared to 21.5% in 2019. Reeves (2019) further explained that this phenomena mostly, about two-thirds, caused because of the rise in the lower income population. This makes total sense, since Temin (2017) in his book The Vanishing Middle Class: Prejudice and Power in a Dual Economy explained that more individuals are closer to the lower end of the economic spectrum as he highlights the diversity within the middle class itself.
The shrinking middle class is evident as the growing disparity between the affluent and the vulnerable segments of society has become increasingly pronounced. Coughlan (2019) said that the middle class are losing to the ultra rich population, where the wealthy continue to amass greater wealth. Those who are closer to the lower spectrum in the middle class categorization and clearly more vulnerable are faced with the risk of descending into lower-income brackets, or should we say the poor. A report from Organisation for Economic Co-operation and Development (OECD) stated that middle-class families were experiencing income stagnation while the rich captured a larger share of wealth. OECD further said that there was a change in the economic model, whereas the high earners found their way upwards, a “dismal income growth” or a falling income were likely to be experienced by those in the middle.
The aforementioned phenomena is worsened, or maybe even caused, by the lack of adequate government support for those vulnerable-middle class populations. The current existing system tends to compound the vulnerability of those at the lower end, making it rather crucial for policymakers to address these disparities to prevent further polarization of both ends. Policy decisions have often overlooked the unique challenges faced by the middle class, leading to unfavorable economic consequences. The plan of value-added tax (VAT) increase to 12% in January 2025 is expected to disproportionately affect the middle class. Mohammad Faisal, Executive Director of the Center of Reform on Economics (CORE) Indonesia (2025) said that the business activities are not fully recovered yet from the 2021 Covid pandemic and the middle class are struggling with stagnant consumption levels. This hike in the tax level will most likely weaken the purchasing power of the middle class. Given that the middle class is the backbone of the economy, this tends to eventually result in economic growth decline. Other than that, an “Opsen” tax was introduced on motor vehicles. This tax is introduced under the justification that those who have motor vehicle(s) would have a proportionate income as measured by those vehicle(s). However, for many middle-class households, owning a vehicle is a necessity for commuting to work rather than a sign of wealth. Therefore, the Opsen tax tends to further burdens middle-class families by increasing vehicle ownership costs. To mitigate these impacts, the government announced a policy package in December 2024, including a 50% reduction in electricity tariffs for middle-income households and VAT exemptions on specific staple foods.
While fiscal policies can have a significant impact on the economic well-being of the middle class, the Indian government implements a tax policy that favors middle class spending. Kumar and Bhat (2025) in Reuters explained that India applies a new tax regime where individuals with annual income of up to 1.28 million rupees will experience tax relief or not having to pay any tax, increasing from the preceding cap of 700000 rupees.
Concurrently, President of Indonesia Prabowo Subianto issued Presidential Instruction No. 1/2025, mandating budget efficiency measures across ministries. This directive led to significant budget cuts, with highlights in the Public Works Ministry, which declined its budget from Rp81.38 trillion to Rp29.57 trillion, resulting in delays or cancellations of at least 21 infrastructure projects. Another highlight is placed in the Education Ministry, with a proposed cut of Rp22.5 trillion. While the Finance Minister, Sri Mulyani, emphasized that these measures are budget reallocations rather than only spending cuts, concerns have arisen mainly about potential job losses and reduced economic activity due to decreased government spending. The concerns about opportunities for higher education also emerge, with the high potential of further college tuition rise. One way or another, this will severely impact the middle class, and even worse the lower class due to higher living costs and potential employment uncertainties.
Empowering Indonesia’s Middle Class: Policies for Economic Mobility and Stability
Given the challenges outlined above, our primary concern is how government policies ought to accommodate the middle class, in the sense that they are meant to help the people in the middle climb the ladder. Harvard economists Dani Rodrik and Stefanie Stantcheva proposed a matrix of policies for inclusive prosperity in a 2021 National Bureau of Economic Research (NBER) paper. In the paper, they addressed the importance of including the middle class in policy formulation so that they can also benefit from economic growth and technological advances.
One key area is education policy. Rodrik and Stantcheva categorised education under the pre-production stage, where individuals are prepared for their future roles in the labour market. In Indonesia, insufficient public investment in higher education is a major concern. Rising tuition fees, particularly in public universities, have made higher education less accessible and reduced incentives for middle-class families to enroll their children in college. While the government’s Kartu Indonesia Pintar-Kuliah (KIP-K) program has supported economically disadvantaged college students, it does not absolve the government from their responsibility to increase overall investment in higher education. Greater funding is essential to boost participation rates, particularly for middle-class students who often face difficult trade-offs in attending and financing their higher education.
Another example concerns job security and insurance for the unemployed, especially considering the frequent layoffs in Indonesia within the past two years. In 2023, around 64.000 workers experienced lay-offs, especially in the textile industry, as the global market weakened and competition intensified. Blue-collar workers are the backbone of the middle-class economy, and being the most vulnerable amidst several shocks, guaranteeing their livelihoods is important.
The government should be able to address the fact that the middle class is still vulnerable, especially amidst economic uncertainties. With livelihoods becoming more expensive and incomes rising relatively slower, most middle-class people are prone to falling into poverty or will likely be ‘trapped’ in the middle for an extensive time. Being the important backbone of our nation, guaranteeing the well-being of the middle class, especially the group which we called the aspiring middle class, is imperative. It is time to understand that they are still in need of significant support, despite being able to escape poverty, and that they are deserving of accommodative policies just as everyone else.