Immediate Economic Effects of Pandemic on Inclusive Growth and Underground Economics: A Case Study Indonesia

The informal sector had become an essential pillar that takes over the economy of Indonesia. While the pandemic is dragging the economy to a low level, the informal sector needs more attention from the government. Bad governance of the informal sector will lead to the creation of an underground economy that impedes economic potential. In contrast, good governance will create more massive economic growth, which will lead to the development of the formal sector. The informal sector supports the economy of low and middle-income countries than the high-income country. That statement is also shown by the data that the informal sector support 8.33% of Indonesian gross domestic product (GDP). This research aims to measure the impact of the pandemic on the inclusive and underground economy from two different perspectives, owners and workers in the underground economy system. This research was conducted by using descriptive and quantitative analysis involving a dummy variable to capture the difference between before and during the pandemic. Using time-series data, this research shows that there are significant effects of the pandemic on the changing of income, consumption, and saving for both owners and workers. Moreover, some informal activists shift to different jobs to keep the proper way of living during the pandemic. The changing of four different aspects, certainly brings society’s prosperousness to a low level. Keywords: inclusive growth, pandemic era, underground econom