percentage points above the East Asia & the Pacific regional average and 7.2 points above the poverty level of upper-middle income countries.

It is projected that close to 39 million will be lifted from poverty by 2030. Under baseline, historical trends on poverty reduction and shared prosperity are projected to continue. Household consumption per capita, the main driver of poverty reduction, would grow at 3.9% per annum. The headcount ratio (%) of extreme poverty using a poverty line adequate for countries with lowermiddle income status, at $3.20 a day, is projected to decline from 31.4% in 2016 to 14.5% by 2030.<sup>18</sup> This represents a decline from 81.9 million in 2016 to 43 million living in poverty by 2030. In a similar fashion, poverty using a higher poverty line of PPP$5.50 a day, adequate for countries in upper-middle income status, would decline from 62.8% to 40%; or from 163.6 million to 118.1 million by 2030 (Figure 12a).

Growth in household consumption is expected not to be equally shared by all segments of the population. The macro-micro simulation framework captures dynamic changes in the distribution of income through a series of simulation steps, which include (a) demographic and educational composition of the population, (b) sectoral reallocation of labor, (c) movements in skill-premia and (d) changes in relative prices of consumption goods.

For the baseline, each one of these effects is decomposed in Figure 11 below. With respect to (a) demographic and educational change, modest regressive changes to the distribution of income are generated from the projected expansion of the supply of skilled labor. As expected, intra-group inequality is higher for skilled labor and this group is projected to increase its share in total employment from 36.8% in 2015 to 42.3% by 2030 (Figure 12b). The sectoral reallocation of labor (step (b)) helps offset the regressive effects of step (a) by allowing labor to move away from the low-wage and shrinking agricultural sector to the expanding non-agricultural sectors of the economy. Step (c) modifies skilled wage premia by sector in line with general equilibrium conditions. This step typically generates strong regressive effects in the baseline as the overall structure of the economy shifts away from agriculture towards skill-intensive manufacturing and services as a result of a rapid capital expansion. This shift in the economic structure determines a relative increase in the demand for both skilled labor and capital. Lastly, (d) the effect of consumption prices is slightly regressive considering that under baseline conditions the inflation of non-food items is slower than that of food prices, resulting from general-equilibrium conditions. The combined effect of these mechanisms is regressive under baseline conditions, making the ratio

> 18 Global extreme poverty has been measured using an absolute poverty line, currently at PPP (2011) $1.90/day. While this absolute poverty line is adequate for the majority of low-income countries, more adequate definitions are needed to measure the evolution of poverty in middle- and high-income countries. As a matter of fact, as countries reach higher levels of per capita income they either increase the minimum threshold level for poverty or adopt relative poverty lines (Ravallion and Chen (2011)). The World Bank has released a set of additional poverty lines at PPP$3.20 a day for lower-middle income and at PPP$5.50 a day for upper-middle income countries. In the forward-looking context of this paper and considering that Indonesia would reach upper-middle income status under business as usual conditions, we monitor the extent of poverty using these two alternative poverty lines.

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