Business

Indonesia's wage wars

  • 21 March 2013
  • From the section Business

Hundreds of factory workers have gathered in front of the Indonesian Supreme Court building in central Jakarta, their arms raised in anger.

The demonstrators seem oblivious to the searing heat, despite the fact they are dressed in heavy black jackets - a uniform given to them by their union leaders.

The atmosphere is almost festive at times - a traditional workers' song blares from speakers, and a few dozen members of the crowd start singing and dancing.

Protests such as these with workers demanding a higher minimum wage are now a regular occurrence in big cities in Indonesia, taking place on an almost weekly basis.

As the economy has grown, workers, , worried they are getting left behind, want a bigger piece of the pie.

Said Iqbal, the head of Indonesia's confederation of trade unions and the man behind many of the protests, has become a hero of sorts for Indonesia's workers.

Labelled aggressive and uncompromising by industry bosses, he has helped to secure a 40% jump in the minimum wage in some parts of Indonesia - mainly through a combination of organising massive protests and threatening to shut down factories.

But despite this, he wants to keep on fighting.

"What I don't understand is how an Indonesian worker can work for decades and still be poor, while the rich keep getting richer," he says.

Workers protest
Worker protests have become regular occurrence in big cities in Indonesia

"We won't stop protesting until there's justice and prosperity for everybody."

'Everybody loses'

But Indonesian bosses say union leaders like Mr Iqbal are being unrealistic.

They complain the economy has started to slow down, Indonesia's reputation has been damaged abroad because of worker protests, and higher wages would see them losing out to other manufacturing rivals.

"The problem is we are competing not just against ourselves - Indonesian companies - we are competing with Vietnam, China, and the new emerging markets like Cambodia - and soon even Burma will open up and compete with us," Mr Harijanto, the chairman of the Footwear Association in the Indonesian Chamber of Commerce, tells me.

He says the government's decision to increase the minimum wage by 40% this year, could set a dangerous precedent and mean workers expect significant wage increases every year.

According to him, the inconsistency in government policy and the higher costs could see some companies go out of business.

"Everybody loses in this situation - the employers, the businesses, the government and the workers," he says.

"If we shut down, then no-one has jobs. But we can't keep operating with these higher salaries because we are uncompetitive in comparison to other nations."

Mr Harijanto says 900,000 jobs will be lost in labour-intensive industries within the next year if the salary raises continue at the pace they have been going, and warns millions more could be affected in years to come.

The minimum wage in Indonesia varies from province to province, and depends on the standard of living in each area. For example, in Jakarta, the minimum wage is now 2.2 million Indonesian rupiah a month ($226; £150) but in West Java it is only 1.25 million rupiah, up from 850,000 rupiah last year.

Mr Harijanto says the wage increase means salaries are now on par with China, or even higher in places like Jakarta.

Extension

Many factories are already feeling the impact of having to pay more to their workers.

In West Java, a garment manufacturing hub, the majority of the 900 or so factories in the town of Sukabumi make clothes. More than 100,000 people are employed in factories in the area.

PT Insan Sari Semesta, one of the companies that has had to raise salaries by 40% employs 170 people to makes ladies' blouses for the Indonesian and overseas market.

Owner Ratih Andrianti says: "We've lost 40% of our profit since we started paying the higher wages. But we haven't seen any increase in productivity. If this continues, it doesn't make sense for me to do this business. Where's the benefit in it for me?"

The company says it tried to delay the increase in wages but its plea was rejected because it sent the paperwork to the wrong government department.

One worker who is pleased with the pay raise is Utih, a packer and the main breadwinner for her family of eight.

She relies on this job to look after her children and does not want the factory to shut down - but she also needs the higher wages to meet basic needs.

Factory
The PT Insan Sari Semesta factory in Sikabumi, West Java, employs 170 people making ladies blouses

Her life is anything but luxurious. Her family lives in a tiny shack. Her bathroom doubles up as her kitchen. And she does not have the money to cook with gas, instead she makes her meals burning firewood, choking up her home with black putrid smoke.

Now with more money coming in every month, she feels she has a shot at moving up in life, but adds the company and workers both need to do their part if the wage plan is to be successful.

"I've heard the factory has to shut down," she says. "The bosses keep whispering about it, and we hear the gossip from time to time.

"I think it makes sense for the workers to try and work harder, so as to achieve a higher target for the company, so it can stay alive."

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