Measuring Unemployment in Developing Countries: The Case of Indonesia

Abstract. Measuring unemployment in developing countries is not straightforward due to the presence of a large number of discouraged workers. Including them into the labor force is sometimes appropriate in order to reflect the true state of unemployment. However, the decision must be based on careful research. This study provides a case study of Indonesia, whose decision to include discouraged workers into its labor force resulted in an artificially high unemployment rates and disguised the actual post‐crisis decline in unemployment in Indonesia. The discouraged workers can be classified based on their willingness to work. If Indonesia still wants to include discouraged workers into the labor force, only those willing to work should be included.