Discussing minimum wages is always a sensitive issue. Workers long for rapid growth of their monthly wages as many of them encounter difficulties in making ends meet in their daily lives. In fact, those whose salaries are close to the minimum wage tend to be near-poor and uneducated, particularly in developing nations such as Indonesia, and therefore both their present conditions and their future perspectives are far from bright.
Investors, on the other hand, want to see very slow minimum wage growth as wages form a significant chunk of businesses’ operating expenses.
Meanwhile, governments are also usually unwilling to encourage rapid minimum wage growth because too steeply growing minimum wages have a negative impact on the attractiveness of the country’s investment environment. When local minimum wages are not attractive, then the investor may simply decide to seek a location in another country where minimum wages are more attractive, implying that a country misses out on foreign direct investment (FDI) and domestic direct investment (DDI).
Or, those investors who had already established businesses or factories within the country and who become increasingly burdened by the rapidly rising local minimum wages may decide to relocate their companies and factories to another country in search of cheaper cost of labor.
In this article we zoom in on the provincial minimum wages of Indonesia in 2020. As usual, all provinces need to determine next year's minimum wage growth in the fourth quarter.
Read the full article in the November 2019 edition of our monthly report. You can purchase the report by sending an email to email@example.com or a WhatsApp message to the following number: +62(0)8788.410.6944