Whose Afraid Of A Minimum Wage?

From this Jakarta Globe article on minimum wage increases in Indonesia:

Heriyanto Irawan, an executive at Deutsche Bank, said he believed the minimum wage rises across the country may actually stimulate investment because higher wages lead to more consumption.

“The positive consequences from the wage increase is an increase in consumption,” Heriyanto said in a meeting with reporters on Wednesday in Jakarta.

He said that on average an increase of 5 percent of sales turnover at a company should be enough to absorb the increase in labor costs.

[Update]: Or, from the Financial Times

But in spite of loud complaints from corporates, experts say issues like wage hikes are unlikely to dampen investor enthusiasm for south-east Asia’s largest economy. Indeed, FDI surged 22 per cent year on year to an all-time high of $5.9bn in the third quarter, even as GDP growth slowed slightly from 6.4 per cent to 6.2 per cent.

HSBC said in a report:  [Foreign direct investment] is drawn to Indonesia for reasons beyond cheap labour. Its population of 240mn represents not just a resource, but also a significant market. Rising incomes – helped along by minimum wage hikes – only raises its allure as the latter… As it stands, consumption expenditure has already increasingly been growing at above trend so far this year; the impulse from a larger than usual minimum wage hike next year could fuel an even faster rise.

To a degree, the government has bowed to corporate pressure by introducing an exemption from the minimum wage hike for SMEs and MNCs that cannot afford it (subject to an external audit). But most experts and industry members are bracing for similar measures to be pushed through next year.

 

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