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Jakarta Post

New rule mulled for wage rise reference

  • Linda Yulisman

    The Jakarta Post

Jakarta   /   Sat, July 20, 2013   /  10:02 am
New rule mulled for wage rise reference Weighty matters: Coordinating Economic Minister Hatta Rajasa (center), Industry Minister MS Hidayat (right) and Indonesian Employers’ Association (Apindo) chairman Sofjan Wanandi (left) chat after a meeting at the Office of the Coordinating Economic Minister in Jakarta on Friday. The meeting discussed fiscal, tax, infrastructure and manpower issues. (Antara/Zabur Karuru) (center), Industry Minister MS Hidayat (right) and Indonesian Employers’ Association (Apindo) chairman Sofjan Wanandi (left) chat after a meeting at the Office of the Coordinating Economic Minister in Jakarta on Friday. The meeting discussed fiscal, tax, infrastructure and manpower issues. (Antara/Zabur Karuru)

Weighty matters: Coordinating Economic Minister Hatta Rajasa (center), Industry Minister MS Hidayat (right) and Indonesian Employers'€™ Association (Apindo) chairman Sofjan Wanandi (left) chat after a meeting at the Office of the Coordinating Economic Minister in Jakarta on Friday. The meeting discussed fiscal, tax, infrastructure and manpower issues. (Antara/Zabur Karuru)

The government is planning to issue a new rule that will serve as a reference for tripartite negotiations to set a nationwide minimum wage increase every year.

The reference will be issued for this year'€™s tripartite negotiations to determine next year'€™s wage increases.

Industry Minister MS Hidayat said on Friday that based on the proposed reference slated to be in a government regulation, the minimum wage rise would be set at around 3 percent and 4 percent above the national inflation rate.

With the government expecting an inflation rate forecast to reach slightly above 7 percent this year, next year'€™s minimum wage, according to the new rule, would be translated into roughly a 10 percent rise.

'€œThe increase is still open to debate at the National Wage Council. By doing this [having a reference], we hope all business players can afford a wage increase. Otherwise, industrial growth will be burdened,'€ Hidayat told reporters after a meeting at Office of the Coordinating Economic Minister.

'€œWe really don'€™t want termination of employment amid the backdrop of the current economic situation,'€ he said.

Indonesia has struggled with a persisting high level of unemployment of more than 15 percent of the overall workforce. The overall workforce also factors in the underemployed.

Hidayat added that the move was made to avert an annual wage rise jump to a level that could not be tolerated by certain business sectors, particularly the labor-intensive industry that employed more than 3 million workers.

For the past several years, debates to determine annual minimum wages have always emerged as a contentious battle between labor unions, employer associations and local administrations.

The problem particularly derives from the failure of the 2003 Labor Law to provide a clear definition of '€œdecent living standards'€.

Worker unrest usually escalates during the annual negotiations over minimum wages, often amplified with massive strikes ending in violence.

With local administrations having the final say in determining the raise, it sometimes goes beyond the level agreed by tripartite negotiations that take months to finish.

Late last year, Jakarta Governor Joko '€œJokowi'€ Widodo instructed companies to raise the provincial minimum wage to Rp 2.2 million (US$217) a month, a 44 percent increase.

His decision was strongly rejected by labor-intensive companies, including those producing garment and textiles as well as footwear partly owned by foreign investors, threatening redundancies and factory relocations.

Indonesian Employers Association (Apindo) wages and social security division head Hariyadi Sukamdani welcomed the proposed rule, but said that it would not ensure what he described as '€œnormal'€ wage increase.

'€œWhat we want to offer is to convert the 60 components of decent living standards into the consumer price index, which will be more accurate, and [the Central Statistics Agency] should extend its survey to wider sampling [of the population to get more accurate results],'€ he told The Jakarta Post.

He explained that taking into account the consumer price index, which could differ from one region to another, would provide a clearer picture on how high a wage increase should be implemented in region.

Hariyadi pointed out that the lack of a current benchmark to determine wage increases also stemmed from a reliance on economic growth, inflation rate and decent living standards, and the exclusion of other factors, such as worker productivity, labor market and the capability of the so called '€œvulnerable industry'€ to endure wage rises.

On top of that, strong government support to stick to the increase approved by tripartite talks was also necessary, according to Hariyadi.

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