Pandemic-induced De-urbanization in Indonesia: Urban and Rural Impacts

Abstract

In Indonesia, the negative health impact of COVID-19 and the initial, direct loss of employment have been largest in urban, not rural areas. But the second-round effects on labor markets have been very different. They have included a huge, empirically documented migration of newly unemployed urban workers from urban to rural areas, in urgent search of employment, food, and safety from the pandemic. We call this “de-urbanization.” It placed the migrating workers in economic competition with the least skilled agricultural workers, expanding their numbers by almost 8%. By increasing the supply of unskilled farm labor, de-urbanization depressed farm workers' real wages. Because the demand for farm labor is inelastic, the total wage income of these workers, aggregated across all unskilled farm laborers, declined. The households relying on this source of income are by far Indonesia's poorest. Similar outcomes may occur in other pandemic-affected developing countries with large agricultural sectors.