The wage increase took effect this year bringing the rate to Rp 2.2 million ($209 USD) per month from Rp 1.5 million ($135 USD), despite companies’ requests for postponements.
Bambang Adam, head of industrial relations at the Indonesian Employers Association (Apindo) East Jakarta chapter, told The Jakarta Post, “The new minimum wage was too high for labor-intensive industries, which only have small margins. Sales also decreased and as a result many companies couldn’t pay their workers.”
Nearly sixty textile and garment companies have relocated their businesses to other parts of Indonesia including Semarang and Surakarta in Central Java and Sukabumi and Subang in West Java. Some have gone as far as Vietnam. Close to 1,200 workers were dismissed as a result.
The UMP in Central Java is less than half of that in Jakarta at Rp 830,000 ($73) and Rp 850,000 ($75) in West Java.
The wage increase caused massive layoffs and an economic slowdown forcing President Susilo Bambang Yudhoyono to set a new UMP structure to avoid facing further layoffs, an instruction he signed in late August.
Muhaimin Iskandar, Manpower and Transmigration Minister said, “As instructed by the President, the increase [of the labor-intensive minimum regional wage] must not exceed the current inflation rate plus 10 percent,” The Jakarta Post reported.
While the instruction has been issued, Apindo chairman Sofjan Wanandi has concerns about its implementation.
“We worry whether the regional administrations, which have the final say on the labor wage increase, can accept this,” he said, according to The Jakarta Post.