What Drives the Effectiveness of Job Loss Security in Indonesia?

Abstract

This study examines the determinants of the effectiveness of Indonesia’s Job Loss Security (Jaminan Kehilangan Pekerjaan/JKP) program within the framework of a developing-economy context. The examination employs Structural Equation Modeling–Partial Least Squares (SEM-PLS). It is based on survey data involving 179 formal workers impacted by employment termination throughout Java, representing approximately 78% of national JKP beneficiaries in 2024. The model evaluates the impact of program benefits (cash transfers, job training, and labor market information), governance and administrative elements (investment fund management, employer compliance, and ease of claims), and labor market conditions, incorporating skill mismatch as a mediating variable. The results indicate that cash benefits, job training, and employment opportunities are the primary factors influencing perceptions of program effectiveness. In contrast, labor market information and governance-related factors do not demonstrate statistically significant effects, indicating a disparity between formal policy design and experiences of beneficiaries. Skill mismatch exhibits a positive and significant correlation with perceived effectiveness, indicating a perception-driven mechanism whereby workers experiencing greater mismatch prioritize immediate income assistance and training over tangible enhancements in job alignment. The mediating effect of skill mismatch is not substantiated. The results indicate that in segmented labor markets with restricted absorption capacity, the efficiency of job loss security is primarily influenced by concrete benefits and employment prospects. The study enriches the literature on unemployment insurance and active labor market policies by emphasizing the importance of prioritizing immediate benefits, relevant training, and job creation to ensure policy design aligns with beneficiary expectations.