Minimum wage could prove costly for Jakarta

By Zubaidah Nazeer | Source: ANN
Some 90 companies are planning to move out of Jakarta and surrounding industrial cities, citing an inability to pay the new minimum wage, and looking to move to locations in Central Java where labour costs are cheaper by half.

“They say it is too expensive to operate here after minimum wages in Jakarta rose by 40 per cent and in Bogor by 70 per cent,” Daniel Purba of the Indonesian Employers’ Association (Apindo) told The Straits Times.

The planned exodus comes as the International Labour Organisation (ILO) released a report on labour trends which found that more wages are being paid closer to the minimum wage level.

Southeast Asia’s largest economy is bracing for more mass demonstrations this year, with unions demanding adequate pay and health benefits. The fruits from Indonesia’s strong growth in past years are still not trickling down to many workers, they say.

Its gross domestic product (GDP) growth has been pushing past 6 per cent since 2010.

According to the 56-page ILO report released last Thursday, the gap between minimum wages and average nominal wages has been shrinking. In 2001, the minimum wage was 59 per cent of the average wage. Now, the minimum wage is 69 per cent of the average wage. This means average wages are not growing as fast as minimum wages.

“This indicates that minimum wages are increasingly becoming the default wage rather than the fallback wage,” ILO economist Emma Allen told The Straits Times. Therefore, though wages have kept up with inflation, the overall position of workers has declined, she added.

President Susilo Bambang Yudhoyono expressed concern over the exodus and urged Apindo and regional leaders to review what is causing operational costs to go up. He maintained in a speech at the opening of an Apindo conference on Monday that “wages are too low and are not fair”.

“Moreover, businesses are profiting, the economy is growing, yet workers are not benefiting.”

In a bid to highlight their plight, two million workers across the country walked off their jobs last October, forcing 1,000 factories to shut temporarily. Some protests turned violent.

Minimum wages vary across provinces based on each region’s cost of living. Regional leaders meet every fourth quarter to decide the following year’s figure.

Labour unions promise more mass demonstrations this year to push for at least a 30 per cent wage rise for another three years.

Labour union leader Said Iqbal told The Straits Times: “This is a good time to push for our rights as the economy is booming.”

Unions are planning demonstrations across eight major cities tomorrow. Some 10,000 workers are expected to strike in Jakarta alone to demand better medical and social benefits.

Jakarta-based companies, mostly labour-intensive ones in the garments and textile sector, are spooked. Ade Sudrajat, head of the Indonesia Textile Association, said: “They feel they have no other option but to relocate from greater Jakarta to cut costs.”

But Jakarta’s governor Joko Widodo, who supports the capital’s 41 per cent rise in minimum wage for this year, says wage hikes for workers are overdue.

He is unfazed by those moving out, telling reporters: “This is the reality of doing business. When costs go up, companies seek cheaper options elsewhere. Jakarta is not meant to be an industrial zone, but a financial and trade hub anyway.”