Time To Talk Minimum Wage

Because Indonesia’s minimum wage is annually adjusted by tripartite boards on the regional level, it is a big news generator.  In every region, every year, there are various parties involved in the process of setting the minimum wage.  So, as we are about to hit minimum wage season, this blog won’t attempt to cover each and every minimum wage news item, but will try to pick out interesting points as they arise.

The Jakarta Globe recently ran an article on Jakarta’s minimum wage negotiations, with the administration projecting a 5% – 10% increase, while unions have been pushing for 25% based on the Reasonable Cost of Living Index.  While the increase is still being negotiated and won’t be announced until the end of the month, according to the article “the minimum wage will also apply to contract or outsourced workers, who were previously not eligible for the minimum wage.”  This would seem to be a significant development, regardless of the final minimum wage increase.  However, one might assume that this is all still up for negotiation.

In Klaten, Central Java, union officials from SPSI also proposed that minimum wage increases be based on the Reasonable Cost of Living Index (KHL).  One interesting argument made by SPSI officials, who are represented on the tripartite wage councils, was to point out that other regions in Central Java have higher minimum wages despite having less developed economies.  I have asked this question on this blog before, but one has to wonder about the effect of the regional nature of the minimum wage negotiation process?  Does it create “race to the bottom” dynamics?  Or does it also offer some leverage to labor, such as the argument put forward by SPSI here?

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