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.

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The organization preferred that the rate would have been lowered to avoid any mass layoffs in Indonesia.

“We went through several rounds of dialogues and discussions during which we tried to understand the Indonesian government’s decision until eventually, the central government decided to keep the rate the same in 2021.”

The threat of strikes imminent

The Confederation of Indonesia Trade Unions (KSPI) has rejected the decree and instead of continuing nationwide protests, members of the union will opt for nationwide strikes.

“Unlike the nationwide strikes conducted on October 6-8, this time, it will only involve factory workers,” said Chairman of KSPI Said Iqbal.

Said argued that this was not Indonesia’s first time experiencing an economic recession and that minimum wage in Indonesia should increase.

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He highlighted that in 1998, Indonesia’s economic growth was minus 17.6 percent with an inflation rate close to 78 percent.

“Massive demonstrations happened and spread throughout various regions. Then Indonesian President Habibie went ahead in increasing minimum wage rates by nearly 16 percent.”

Using the same analogy thus economic growth and the inflation rate are far lower than that in 1998. This year, the Indonesian economy is predicted to reach minus 8 percent with an inflation rate of 3 percent.

With that calculation, KSPI has proposed that Indonesia’s wage hike should rise by 8 percent.

Should business owners find it difficult to realize thus KSPI suggests negotiating the matter with the regional government and National Remuneration Board.

Although several companies are still operating, it is not necessary to impose the same wage hike requirement considering that not all companies can afford it.

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Furthermore, there has been no agreement from the National Remuneration Board which states that there will be no increase in the minimum wage next year.

During a high-level forum involving the National Remuneration Board on the provincial and regency/city level, nothing was stipulated about any wage increases in 2021.

For those reasons, KSPI members have requested that each governor ignore the decree.

They asserted that should there be no wage hike then labor union workers will demonstrate at a larger scale further fueled by their disapproval of the Job Creation Law.

“It is very possible that laborers will decide to engage in nationwide strikes,” insists Said Iqbal.

(Writer: Muhammad Idris | Editor: Muhammad Idris)

Source: https://money.kompas.com/read/2020/11/03/092707926/pengusaha-wanti-wanti-gelombang-phk-saat-upah-minimum-naik?page=all#page2