You are here

Pension Reform and Informality in Indonesia: Micro Data and Macro Approach

CEPAR Cross Nodal Seminar Series

Date: Wednesday 25 May 2022

Speaker: Dr George Kudrna, CEPAR Senior Research Fellow, UNSW Sydney

Topic: Pension Reform and Informality in Indonesia: Micro Data and Macro Approach


The focus of this presentation is on Indonesia, the world’s four most populous country that, as other countries in Southeast Asia, has a large informal sector and will face rapid population ageing. First, drawing on the Indonesian Family Life Survey (IFLS), I present data about Indonesia’s labour force, socioeconomic characteristic and incomes of older people, asset holdings over the life cycle. Then, I provide a non-technical description of the developed macroeconomic model that incorporates detailed micro behaviours, calibrated to the IFLS data. The model is applied to examine pension policy extensions to formal labour, as well as to informal labour. These reforms include contributory pension extensions to all formal workers and gradually increasing formal retirement age from 55 to 65 (both being gradually implemented in Indonesia). For informal labour, I examine an introduction of non-contributory social pensions with a very modest, universal benefit to all those aged 65+. Based on the model simulations, I show that the overall pension reform leads to higher welfare for both current and future generations, with the largest welfare gain attained by the current informal elderly, benefiting from social pensions. Under demographic transition, the fiscal cost of social pensions is shown to increase significantly. As an alternative, I consider application of a means-tested social pension system and show that this counterfactual reduces the fiscal cost and further increases the welfare of current generations. 

Presenter’s Biography

George Kudrna is a CEPAR Senior Research Economist, located in the UNSW Business School. He completed his undergraduate studies in economics and insurance management in the Czech Republic and received a PhD in Economics from the University of Sydney. His research encompasses the areas of public economics, macroeconomics and population ageing. He develops and applies rigorous macroeconomic models to investigate the economic impacts of demographic change and retirement income policy reforms – with the ultimate aim of informing and influencing major policy decisions in this area. George currently leads an ARC linkage grant on ‘Modelling Policy for Ageing in Emerging Economies: Indonesia and beyond’ with the World Bank and Bappenas as partner organisations.

For his recent research papers see: https://sites.google.com/site/georgekudrna/research