A business lobby group, the Indonesian Employers Association (Apindo), is considering proposing a new wage differentiation scheme based on the size and sector of businesses in its annual tripartite talks.

Apindo chairman Sofjan Wanandi said that it would be necessary to differentiate between small and medium enterprises and large firms, as well as labor-intensive and capital-intensive sectors, due to their different wage capacities.

That was partly attributed to the different ratios of labor wages in costs of production, he said.

'€œCurrently, they should pay the same wage increase. Big firms can afford the rise in wages, but the small ones can'€™t,'€ he said during a discussion on labor on Wednesday.

Sofjan pointed out that a number of foreign manufacturers in the labor-intensive industry have begun to eye other countries with lower labor wages, such as Bangladesh and Cambodia.

The situation has been confirmed by the Investment Coordinating Board'€™s (BKPM) recent data, which shows that new investors have been in favor of capital-intensive businesses over the past three years, instead of labor-intensive ones, as the low-wage sector has lost its competitive edge in comparison to its Asian peers, particularly Vietnam, Pakistan and Bangladesh.

The shift of investors from labor-intensive sectors to capital-intensive ones may hamper industrial and economic growth, which still rely on business sectors employing a sizeable number of workers in the country, which suffers from high unemployment, according to Sofjan.

A high unemployment rate could be a source of social unrest, he said.

According to the Central Statistics Agency (BPS), 7.39 million people in Indonesia, out of a total of 118.19 million in the labor force of Southeast Asia'€™s largest economy, were unemployed as of August last year.

That represents an unemployment rate of 6.25 percent, higher than the 5.92 percent in February last year.

Atma Jaya University economist A. Prasetyantoko noted during the discussion that Indonesia had relied heavily in the past on a low-wage regime in the manufacturing industry to maintain the competitiveness of its economy.

'€œThat'€™s why, when the wages keep rising like what we are seeing now, the competitive edge is eroded,'€ he said.

'€œWe should have braced for a phase when our labor would be highly absorbed in the non-manufacturing sector, which is services.'€

Significant wage increases in the manufacturing industry in the past few years were not considered able to catch up with those in other business sectors because the baseline wage was already so low, Prasetyantoko said.

Confederation of All-Indonesian Workers Union (KSPSI) chairman Andi Gani Nena Wea said that the government should be playing a major role in helping workers boost their productivity, in line with the wage rise demands.

'€œThere are so many government-run labor training centers nationwide but they are not adequate for equipping the labor force with skills needed by the labor market,'€ he said during the discussion.

Separately, Frans Go, head of the workforce empowerment committee at the Indonesian Chamber of Commerce and Industry (Kadin), said development of the national workforce was still at a low, while facing questions on whether the workers or the institutions were responsible for the slow development.

'€œThis situation is forcing us to no longer act normatively towards the problem. It is pushing us toward a breakthrough so that the workforce as a national asset will not be a burden in the future,'€ Frans said in a statement released on Wednesday.

He elaborated that the quality of human and natural resources were crucial aspects in the development of the workforce.

'€œAn abundance of natural resources will not make a country prosperous if it is managed by an incompetent workforce. The workforce has a role in triggering development,'€ he added.

According to Frans, the problems that hinder the national workforce in its development include the lack of job opportunities, the low quality of the members of the workforce themselves, as well as a high unemployment rate.

He added that other problems such as outsourcing, unemployment and a significant increase in the minimum wage were also prevalent in the workforce sector. (dyl)

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