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Govt mulling minimum-wage reform

Coordinating Economic Minister Sofyan Djalil has said Indonesia needs to formulate a new policy on the minimum wage in the manufacturing sector so that wage levels can lead to improvements in workers’ welfare but at the time will not harm business activities

Linda Yulisman (The Jakarta Post)
Jakarta
Thu, November 6, 2014

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Govt mulling minimum-wage reform

Coordinating Economic Minister Sofyan Djalil has said Indonesia needs to formulate a new policy on the minimum wage in the manufacturing sector so that wage levels can lead to improvements in workers'€™ welfare but at the time will not harm business activities.

Speaking to business groups under the Indonesian Chamber of Commerce and Industry (Kadin) on Wednesday, Sofyan said that the government would soon carry out a comparative study of minimum wages, including practices applied in other countries.

The study was required to ensure that Indonesia would be able to determine an appropriate wage for workers but at a level that did not deter investment, Sofyan said.

'€œWe fully understand that our workers need to get a decent wage, but we should not rush to raise it too quickly,'€ he added.

The determination of annual minimum wages has long been a source of dispute between labor unions, employers'€™ associations and local administrations. The problem apparently stems from the failure of the 2003 Labor Law to clearly define '€œdecent living standards'€.

Labor unrest often accompanies annual negotiations over the increase in minimum wages, with widespread strikes in recent years.

Former Industry minister MS Hidayat earlier proposed '€œyearly inflation plus several percent'€ as a formula to end lengthy disputes on the issue. Solving the minimum-wage issue will be a tough challenge for the new government of President Joko '€œJokowi'€ Widodo.

During his tenure as Jakarta governor Jokowi raised the provincial minimum monthly wage by 44 percent to Rp 2.2 million (US$180.9) despite protests from labor-intensive businesses, many of them foreign-owned.

Since the New Order regime of former president Soeharto, Indonesia has pursued a cheap-labor policy in order to attract foreign investment to accelerate development and reduce unemployment.

Sofyan said that with the planned wage policy, the government aimed to court investors that were leaving China and heading to countries with lower labor costs, such as Thailand.

'€œLet'€™s pull them to Indonesia. That'€™s why we must build industrial estates in regions where wages are still competitive,'€ he said, adding that the government would facilitate this by building low-cost homes and supporting infrastructure.

Previously, Industry Minister Saleh Husin said the government would build at least 13 industrial estates outside Java to help speed up and spread development.

Apart from designing a new labor policy, the government would lay out a zoning system for agricultural production based on the specific capacity of each region, Sofyan said.

'€œWe will talk to local administrations and the agriculture minister. We see in Taiwan, for example, how the zoning system has allowed agricultural production to reach an economy of scale and as a result it grows the downstream industry and reduces cost of production,'€ he said.

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