Historically, Indonesia was one of the world's poorest countries. Since then, the country has grown at an annual rate of 5.6 percent on average. It is now classified as a middle-income country. We saw one of the fastest decreases in poverty in history, but we also saw the establishment of a solid and increasing middle class in Indonesia. One in every five Indonesians is now middle-class and does not need to worry about money. Indonesia requires a stronger and more stable middle class in order to maintain its economic trajectory. Approximately half of all household purchases are made by the middle class. This group contributes significantly to economic growth. 43 percent of business owners create the majority of the jobs needed to support the expanding population. These people are more likely to invest in human capital for future generations, and they provide roughly half of all indirect taxes used to fund government programs that help the country thrive.
If Indonesia is to prosper and reach middle-income status, it will need a much larger middle class. This will demand a major emphasis on the aspiring middle class, which includes the 115 million Indonesians who are no longer underprivileged or vulnerable but have not yet achieved middle-class status. Giving them a road to the middle class would not only boost the country's prosperity, but would also aid in the reduction of poverty and inequality. More Indonesians will need to complete secondary and postsecondary education at institutions that can provide them with the skills needed to function in the modern world in order to increase the number of Indonesians in the middle class. This puts them in a better position to seek better jobs, especially formal ones in higher-paying services that can help them enter the middle class. When people return to the aspirational class, around 40% of them return to the middle class. This means that a strong social safety net will be required to protect people from major shocks.
There is no time to be idle. There is a chance that Indonesia's middle class will not be able to give as much as they could. Already, there are signs that they will not contribute to Indonesia's growth. They pay no personal income tax, and an increasing percentage of middle-class people prefer private health care and education than public. To ensure that participation is open to everyone in the middle class, as well as those who desire to be in the middle class, Indonesia will need to agree on a new social compact. This will mark the beginning of a new collaboration between the state and its increasingly prosperous citizens. The state will ensure that its population continue to use its services through upgrading public services, increasing upward mobility through better jobs, and increasing people's resilience through enhanced social protection. Furthermore, by paying their taxes on time, taxpayers will help the state fund these projects. Our objective is that this research will inspire debate about how to increase upward mobility and create a new inclusive economic model for Indonesia. As long as Indonesia has a clear picture of its issues and a clear vision for the future, it has the capacity to execute another miracle: to break free from the middle-income trap and transform itself into a more inclusive and prosperous society.
In a variety of ways, the middle class has been linked to economic progress. The middle class has long been regarded as an important contributor to economic success in Western Europe (Adelman and Morris, 1967). The middle class gains economic power in a variety of ways. The first is that domestic markets are crucial for economic growth. If the middle class grows large enough, it has the potential to make a significant contribution to economic advancement. This is because the middle class has more money and is more picky about what they buy. Economists believe that a certain size of the domestic market is required to offset the costs of industrialization and overseas trade. They claim that a sizable middle class is essential because there is insufficient demand to fund these expenditures. Furthermore, middle-class people can aid by generating a big market for innovative ideas, which helps keep the cost of new goods low (Matsuyama, 2002). Middle-class expansion in countries like as India and China is expected to enhance future global expenditure, offsetting a fall in demand for autos and apparel among Americans and Europeans (OECD, 2010). With greater money, the middle class may invest in things like human and physical capital, which will help the economy grow further. The impoverished may be unable to earn or save enough money to meet a minimal investment need for human or productive physical capital acquisition in imperfect credit markets (Banerjee and Newman, 1993; Galor and Zeira, 1993). The middle class, on the other hand, has significantly more money and can invest in both types of capital.
It leads the stock market to rise and the economic growth to expand. Increasing middle-class people equals more wealth gained over time. Rising middle-class participation may also influence how society views investing in people's abilities. As a result, Indonesia has been regarded as an excellent area to do business and invest.
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