The wage question in Indonesia

The battle between unions and employers over minimum wage laws is a contentious issue in Indonesia. Recent wage decisions in different cities and regions highlight major problems with living costs, as well as the unevenness of Indonesia’s labour geography.

As widely predicted, the minimum wage has proved to be a hot political and economic issue in the early months of Jokowi’s presidency. As I wrote on 22 October, the cost of living has long been a contentious issue in Indonesian cities. In Jakarta, food and fuel prices have been increasing, alongside increasing poverty last year. Trade unions have continued the street protests that were only temporarily abated during the election earlier in the year. Protests in various parts of Indonesia began to increase by early October, focused on the minimum wage decisions of municipal governments in various cities. As I highlighted, there is controversy not only over the level of minimum wages but also over the methods used to calculate them.

This week, Jokowi’s replacement as Jakarta Governor, Basuki Tjahaja Purnama (also known as Ahok), sided with employers in declaring the capital’s minimum wage at Rp 2.7 million per month (about $AU 255). This is roughly a 12.5 per cent increase on the wage set by Jokowi last year but is way below union demands for Rp 3.5 million to keep up with surging food and fuel prices. ‘The expected wage increase is not much higher than that proposed by employers’, wrote the Jakarta Post. Apart from Ahok’s intransigence—the Governor seems to delight in tough-talking, including belittling his opponents—this decision highlights the uneven results of union campaigns across Indonesia.

While it looks like the big employers, represented by their peak body, Apindo, are getting their way thus far in Jakarta, this isn’t necessarily the case in other cities. In Indonesia, minimum wages are set at a local level by ‘wage councils’, which are required to have representation from government authorities, employers and unions. The Mayor of Surabaya, Indonesia’s second largest city, recently refused to sign-off on the minimum wage set by her local wage council, which had been proposed at below Rp 2.6 million. Interestingly, the Mayor’s reticence comes despite threats by Japanese firms, articulated via the Japanese consulate, that rising wages in Surabaya and other East Javanese cities and towns would force their relocation to Vietnam. In Central Java, where wages are much lower than Jakarta or Surabaya, unions have won a commitment from the Governor for a 10 per cent increase next year, which, if implemented, will have an impact on workers in cities like Semarang, Solo and Purwokerto.

In the industrial city of Bekasi, the heartland of Indonesian auto production, unions had a victory with the local wage council setting a Rp 2.95 million minimum wage. Said Iqbal, president of the KSPI, one of the three big union confederations in Indonesia, emphasized that Jakarta wages would now be lower than Bekasi wages. Even in the electronics-industrial island of Batam, where the Mayor set the island’s minimum wage at Rp 2.66 million, well below union demands of a 45 per cent increase to compensate for rising fuel prices, unions have mobilized against city authorities and demanded a review. Union agitation has forced authorities to block roads into some industrial areas on Batam to prevent unions from encouraging workers to join protests.

In the city of Medan, thousands of workers have resisted the North Sumatra governor’s decision to set a minimum wage of Rp 1.63 million, threatening to occupy his office until he offers a 30 per cent increase. Interestingly, while Apindo has argued for wage cuts in several areas and implied that it will refuse to implement some decisions, it argued that it was ‘ready’ to accept the decision in Medan. The Bekasi Wage Council’s decision, and a similarly large wage increase in the city of Sukabumi in West Java, led to Apindo angrily accusing city authorities of manipulating cost of living calculations. The employers’ association argued that 80 per cent of firms in Bekasi would be unable to afford the pay rise, leading to capital flight, especially among more labour-intensive production units like export garments.

So unions have broken through in some areas, most notably in Bekasi, and continue to defy municipal decisions in others areas, such as Batam. In this context, it will be very interesting to observe the extent to which unions are prepared to confront Ahok’s intransigence. It is also somewhat ironic that Apindo has attacked minimum wage calculations in Bekasi and Sukabumi when this has been the issue most emphasized by unions. The Legal Aid Institute (LBH) in Jakarta, one of several very important labour NGOs with links to the KSPI and to overseas (particularly German) unions, has provided an excellent explanation of why the Decent Living Index (KHL) used to calculated minimum wages has been so controversial. They show that data taken from official Indonesian statistics (BPS) gives prices for basic essentials that fall well below KSPI estimates. For example, BPS food and drink estimates used in KHL calculations fall 34 per cent below union estimates. For housing costs, the shortfall is 21 per cent, education 52 per cent and transport costs, 18 per cent. Even if one is extremely generous to Apindo’s arguments, it is clear that current calculation practices institutionalize real wage cuts. Alas, the Jakarta KHL, set at Rp 2.5 million, was commensurate with employer demands.

LBH Jakarta’s report also suggests that there are different interpretations of ‘decent living’. Based on analysis from Asian Floor Wage activists, who observe factors like minimum calorie intake, costs of shelter, medical care, education, etc, Jakarta workers would need over Rp 4 million per month to satisfy their ‘decent living’ criteria. As LBH also argue, a ‘living wage is only one component of a decent life’ and point to data on the millions of workers who are not registered by their employer to receive basic social security, which could further assist with living costs. Some more excellent analysis of problems with the KHL’s calculations has been provided by Patrick Tibke. He argues that the KHL in Jakarta was ‘a document riddled with errors compiled by a team of ruthless statisticians who clearly have very little regard for the welfare of low-wage workers’. For example, water costs do not take into account the need to use fuel to boil water so it is drinkable. He also shows that the 75 gram monthly ‘meat’ allowance is nearly 30 times less than the recommended intake in Thailand and nearly 54 times less than the Malaysian equivalent.

Conflict over wages raises a whole series of interesting and important questions, some of which I note here: Judging by some of Apindo’s rhetoric, is it possible that many employers will simply refuse to observe wage laws in regions where government decisions go against them? In those areas, like Jakarta, where local decisions favour employers, to what extent can labour resist these changes? There are even broader questions about the remit of minimum wage laws in Indonesia and the extent to which these are implemented in practice, the breadth of coverage over the country’s largely informal workforce (including millions of low wage workers in rural areas) and the extent to which minimum wage laws serve as a guide to wage-setting in enterprises. And there are wider political economy questions over the threats, some hollow and some more ominous, that employers will shift production to lower-wage countries. Whatever the answer to these questions, it is clear that Indonesian capital and state institutions are struggling to manage the demands of organized workers as the economy continues to expand.

Postscript: wage campaigns led by ‘formal’ workers and unions are certainly not the only significant development for followers of Indonesian labour affairs. In recent times, there has been a lot of focus on the plight of Indonesian workers who work overseas as migrants (TKI). The horrific deaths of two Indonesian women working as domestic workers in Hong Kong has drawn attention to the numbers of poor, rural workers who engaged in conditions of bonded labour. Perhaps 6.5 million Indonesian work overseas, many of them as domestic workers. Some regions specialize in particular jobs. For example, 80 per cent of TKI from the province of West Nusa Tenggara, mostly from East Lombok, work in Malaysian plantations. The plight of domestic workers in Hong Kong, where hundreds of thousands of Indonesian women work in households, has also been raised in the context of Hong Kong’s democracy movement. Even The Economist has raised this as an important issue. These reports suggests that the exploitation of TKI will be another labour problem that activists will use to demand action from Jokowi’s nascent administration

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