Jakarta approves 40% minumum wage hike

Featured - November 24th, 2012

Jakarta’s new governor has agreed to increase the minimum wage in the Indonesian capital by more than 40% in the face of increasingly demanding labor groups, raising concerns that the move could hurt the country’s economy.

Governor Joko Widodo approved the minimum wage hike of 40% from 1.53 million rupiah to 2.2 million rupiah ($228), much to the chagrin of employers.

“If we talk about whether we are satisfied or not, then it will be an endless discussion, and we will never be able to decide on the figure,” Gov. Joko said.

The decision came under criticism from the business sector, which said it was a populist policy. According to analysts, the move could mean higher wages and inflation across Indonesia and potentially discourage investors.

The Indonesian Employers Association, a major employers’ organization, warned of mass lay-offs as companies struggle with increased production costs, Jakarta Globe reports.

Still, labour groups were not contented and took to the streets Wednesday demanding better pension benefits. They also plan to hold protests on Thursday to pressure neighboring cities to follow suit.

Kodrat Wibowo, an economist from Padjajaran University in Bandung, said workers’ demand for higher wages should match an increase in productivity.

“Indonesian labor productivity is lower than others in the region,” Kodrat said, adding that it was because of “poor work ethics”.

This comes as Indonesia’s economic outlook is set to grow more than 6% this year and next year on the back of foreign direct investments.