Jakarta raises minimum wage by 11%; workers’ strike to pressure for more fails

A child walks between motorcycles, which workers parked to block a street, during a protest to demand wage increases in Jakarta. - Reuters pic, November 2, 2013.

Indonesia's capital raised its minimum wages by 11% on Friday, far below demands for a 50% rise during a two-day strike that failed to draw the millions hoped for by some labour groups.

Police put Friday's turnout on the streets of Jakarta and neighbouring industrial areas in the thousands only, with two of the three major unions staying at work, saying a repeat of last year's 44% increase could jeopardise jobs at a time when growth is slowing.

Only about seven million workers across the country, with a population of 240 million, are union members. Most are part of the informal sector in a country where 40% of the population survives on around US$2 (RM6.30) a day.

"The wage hike isn't that big and that might have an effect on domestic consumption, but on the whole, the impact on the economy would be worse if businesses were forced to close because of unsustainable labour costs," said Destry Damayanti, chief economist at Bank Mandiri.

"When workers ask for a 50% increase in wages, that doesn't reflect a rise in productivity. So that's bad for labour-intensive companies and for the economy as a whole. This year the increase in minimum wage (in Jakarta) is in line with inflation, so I think it's reasonable."

Inflation in Southeast Asia's biggest economy hit 4-1/2 year highs of over 8% after June's sharp increase in fuel prices.

Asep Kusno, of PT KMI Wire and Cable, a Jakarta-based cable manufacturer, welcomed the wage increase.

"We were expecting an increase of about 20% so we had factored it into our budget for next year," Kusno, corporate secretary of the company, told Reuters via SMS. "So we won't feel the effect of the wage hike so much this year."

Manufacturers have warned repeatedly that any big wage increases would eat away at Indonesian competitiveness.

Jakarta, which is seen as a benchmark for neighbouring industrial districts, raised the monthly minimum wage in the capital to 2.4 million rupiah (RM672), to take effect in January.

The announcement was made by Jakarta's popular governor Joko "Jokowi" Widodo who, opinion polls show, would easily win next year's presidential election if he runs.

He has not yet been nominated, but there is widespread speculation the opposition PDI-P party will choose him as its candidate.

"It shows Governor Jokowi is not as populist as some in the business community had feared earlier," Standard Chartered chief economist Fauzi Ichsan said.

Indonesia's economy, which has grown at an average annual 6% in recent years, stumbled this year because of trouble in the global economy and slowing domestic demand.

Last year, labour unions mobilised hundreds of thousands of workers to push the government to raise minimum wages by an average of 44% in greater Jakarta to 1.9 million rupiah (RM572) a month. - Reuters, November 2, 2013.

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