Employers warn of massive layoffs in Indonesia after wage hike

Employers warn of massive layoffs in Indonesia after wage hike
Indonesian workers rally in Jakarta on Nov 21, 2012 for the government to increase wages and end the practice of outsourcing manpower.

JAKARTA - The 2013 minimum wage set for workers in Jakarta is considered too high by employers, who fear that it may backfire as businesses consider a recruitment freeze.

An entrepreneur in the food and beverage sector, Adhi Lukman, said on Wednesday that the Rp 2.2 million (S$280) minimum wage for a single worker had persuaded him and his fellow businessmen to find a more affordable way to compensate for the high labour costs.

"The alternative we have in mind is to invest more in machinery to replace human workers. That way, employment opportunities will be limited, thus creating a new social problem," said Adhi, chairman of the Indonesian Food and Beverage Association (Gappmi).

He said that in his industry, the significant wage hike would lead to a 4 to 5 per cent increase in products' basic prices. "That increase means higher selling prices. And every increase will have a significant impact on business in this sector."

Jakarta Governor Joko "Jokowi" Widodo made official on Tuesday the decision to raise the minimum wage from the current Rp 1.5 million. The new minimum wage will come into effect in January.

The increase of nearly 44 per cent was slightly lower than the recommended Rp 2,216,243 issued by the Jakarta Remuneration Board last week. The main reference point behind the decision was the basic cost of living for a single worker, which the board set at Rp 1,978,789.

The board is chaired by officials from the city administration and representatives from labour unions and employers' associations. The tripartite forum makes recommendations on the minimum wage to the governor on an annual basis. The Jakarta governor has the final say on the city's minimum wage.

Eddy Kuntadi, chairman of the Jakarta branch of the Indonesian Chambers of Commerce and Industry (Kadin), said that although they would comply with the decision, there were consequences they may have to face in the implementation.

"The new wage will definitely impact all businesses - large and small. Some may have to conduct layoffs or even close their businesses," he said.

Although employers were beholden to pay severance to any staff laid-off, Eddy said it needed to be calculated accurately by employers. "Layoffs are probably necessary to cut total costs, but maybe it is better than having to suffer prolonged losses."

Based on the existing Labor Law, business owners who fail to comply with the minimum wage policy could face a fine of Rp 400 million and up to four years in prison.

"Small and medium enterprises [SMEs] will be the ones who suffer most in this wage hike. But they can request a postponement from the governor if they feel it will burden them too much," Eddy said.

The government plans to be lenient with SMEs by not insisting that they pay their workers the new minimum wage immediately.

Manpower and Transmigration Minister Muhaimin Iskandar said recently that SMEs could propose a postponement if they felt the new minimum wage was too burdensome.

There are around 18,000 SMEs listed as members of Kadin Jakarta.

The city's Manpower and Transmigration Agency head, Deded Sukendar, said the administration would raise awareness about the new wage among employers and workers in the city.

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