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Suryadi Sasmita, the secretary-general of the Indonesian Employers Association (Apindo) and the owner of a garment factory and retail shops in Jakarta and surrounding towns, said he was among the employers considering a request to suspend the increase in his workers’ wages.
While production, transportation and security costs have risen by 75 percent, the new wage hike could raise labor costs by 30 percent, he said. To stay competitive increasing prices is not an option.
The Bogor regency recently decided on a wage rise of 70 percent to Rp 2 million (US$207.68).
The Jakarta administration increased the monthly minimum wage by 44 percent to Rp 2.2 million for 2013. In Greater Jakarta, officials in Bekasi, West Java, have increased the minimum wage by 54.7 percent to Rp 2.1 million. With such increases, Suryadi reckons employers will suffer an annual loss of at least 7.5 percent.
Electricity prices have increased by 5 percent and raw materials have risen by 10 percent. “We are still calculating whether my company is able to raise workers’ wages or if we will request permission to delay from the Bogor regent,” he said.
The significant increases in the provincial minimum wages, which are to take effect on New Year's Day, have led to threats from the business community. Some say they may sue regional heads in the State Administrative Court, and ask a judicial review from the Constitutional Court regarding the increases.
Several labor-intensive companies have planned lay-offs while others are considering relocation to regions with cheaper wages. Shoe-manufacturer PT Bata Indonesia has suspended operations in Purwakarta, West Java, and textile factory PT Honey Lady in Gunung Putri, Bogor, has decided to lay off 1,000 workers in the next two months and another 1,000 next year. The main reasons are the wage increase and Ministerial Decree No. 19/2012 on outsourcing, providing job security to an estimated 20 million contract-based workers nationwide.
C.K. Song, chair of the Indonesian-Korean Chamber of Industry and Trade, said several Korean companies plan to dismiss 140,000 workers because of the two policies.
Apindo Chairman Sofjan Wanandi criticized the manpower and transmigration minister and many governors whom he said have given political factors more weight than economics in endorsing the new wages.
“Many labor-intensive companies and small- and middle-scale enterprises plan lay-offs, lock-outs and dismissals because they can not endure the new financial burdens,” he said.
He added the government could not unilaterally raise the minimum wages higher than the recommendation of the regional tripartite wage commission without considering the financial capability of employers.
Most investors in labor-intensive companies are weighing the dilemma of trimming costs and expecting smaller profits; or downsizing their labor force, and having to pay large amounts of severance pay.
The director general of industrial relations and social security affairs at the Manpower and Transmigration Ministry, Irianto Simbolon, defended the policy on wages as upholding social justice.
In April this year, the Asian Development Bank (ADB) raised fears about increased income equality amid Asia’s rising wealth. But ADB managing director Rajat Nag recommended cutting subsidies such as those for fuel, as a first step to reduce the income gap, to be able to better spend the subsidies on public health and education — rather than belated populist measures.
Irianto however said the setting of minimum wages was based not only on political conditions, but mainly on price surveys, inflation, companies’ average financial capability, economic growth and the common labor condition with reference to fundamental world conventions on decent work, decent pay and collective bargaining.
Director of wage affairs at the ministry Wahyu Indrawati challenged companies, including SMEs, to formally propose a delay to pay the minimum wages, in line with the 2003 ministerial decree on wage increase suspension.
“Employers should not voice threats through the mass media. Companies with financial difficulties in the past two years are given a chance to suspend raising wages in accordance with the minimum wage rulings. The government will accept requests provided they can be audited by independent auditors or public accountants,” she said.
She added SMEs could not be exempted from the minimum wage rulings mainly because the minimum wages were a social safety net or the lowest limit in respect of workers’ dignity.
Though employers have protested at decisions on the minimum wage, she said so far none had requested an exemption because they are unwilling to be audited — which would reveal dishonest practices regarding taxes and social security programs, apart from inefficiencies.
Wahyu said she did not believe that investors would book only 5 percent in annual profit with wage rises of around 10 percent, for instance, as they would invest in bank deposits if that were the case.
Wahyu said the government has encouraged employers to settle their wage disputes with workers through dialogue, which could have prevented the strikes.
Many small companies in Jakarta do not propose suspending the wage increase but have suspended them anyway with the agreement of their workers, following bilateral forums and dialogue.
“Workers prefer staying employed without any wage rise, provided their employers are transparent in unveiling the company’s financial condition,” she said.