Indonesian Employers Warn of Mass Layoffs Ahead of Wage Hikes in 2021

JAKARTA, KOMPAS.com – An employers association in Indonesia fears the decision by certain regional governments to increase the minimum wage is expected to trigger mass layoffs in the country.

Hariyadi Sukamdani, Chairman of the Indonesian Employers Association (APINDO), expressed his disappointment over the decisions by the respective governors of Central Java, East Java, Yogyakarta Special Area, Greater Jakarta Area, and South Sulawesi to proceed with a wage hike next year.

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Hariyadi emphasized how their decisions do not align with the Indonesian Ministry of Manpower Decree Number M/11/HK.04/2020 about Minimum Wage 2021 during Covid-19.

“By proceeding in setting a minimum wage that goes against the decree, it will only add more burden to the business sector which in turn, will trigger mass layoffs in Indonesia during a critical time.”

The APINDO chairman supported the Manpower Ministry’s decision to maintain next year’s minimum wage rate at the 2020 level.

Based on his assessment, the decision is in line with the recommendations from the National Remuneration Board and has also considered the conditions that 10 business sectors most affected by the coronavirus pandemic are facing.

With Indonesian employers facing difficulties in paying a full salary to its employees during the Covid-19 crisis, Hariyadi said that the ministry’s decision is rational.

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Under normal conditions, the provincial minimum wage would have decreased given the economic contraction and inflation.

“Of course we would not use this formula where the wages would decrease. That is why the recommendation was to keep the rate the same as this year.”

Business owners in trouble

Based on data from Statistics Indonesia, nearly all business sectors in Indonesia have seen their earnings plunge. They also face difficulties in paying workers' salaries.

Nearly 53.17 percent of medium- to large-scale businesses have incurred financing problems related to their operations and employees. Around 62.21 percent of micro- and small-scale businesses are facing the same obstacles.

APINDO said that it had originally objected to the decision to maintain the minimum wage in Indonesia for 2021 at the same rate as this year.