IO – A survey released by consulting company ECA International estimates workers’ wages in the Asia Pacific will increase by an average of 4.3% in 2021. They also predict that workers’ wages in Indonesia will have the highest increase in 2021 at an average of 3.8%, followed by Israel (2.8%), and by Singapore and Thailand (both at 2.7%).
I believe that this increase is related to several issues, such as the fact that the culture of social dialog is better developed in Asia than in other regions. Furthermore, workers in Asia highly support the policy of wages based on a specific minimum rate from the Government. It is thus natural that wages will rise in the region.
According to a report issued by the ILO Regional Office for the Asia Pacific region, average wages in Asia grew more than double the rate in other regions, up until the financial crisis. This increase in average wages is related to the progress of social dialog and the effort to socialize minimum wages in various countries throughout Asia (201/17 Global Wage Report – Asia and Pacific Supplement). Furthermore, Asia is a global market, and many countries are interested in maintaining the public’s buying power there, so that the goods and services produced by these countries can circulate more widely. In its turn, buying power is supported by wage levels. In other words, rising wages in Asia is a strategy to maintain the buying power of the people who live there.
The estimate that our wages will increase 3.8% in 2021 is logical. Statistics Indonesia (Badan Pusat Statistik – “BPS”) recently announced that inflation rate in October 2020 was 0.07%, making the calendar year inflation for January to October 2020 at 0.95% and year on year inflation rate at 1.44%. Based on this fact and referring to the current regulation of minimum wage, i.e. minimum wage must be increased based on inflation rate and economic growth rate in Article 44 of Government Regulation No. 78 of 2015, several Governors raised their minimum wage accordingly.
This is a logical raise, as Indonesia is a highly potential market country in Asia. Indonesia’s GDP, based on price level in Quarter II of 2020, was IDR 3,687.7 trillion, and while based on constant price level in 2020 it is IDR 2,589.6 trillion. In fact, this is the highest level among ASEAN countries. About 57% of our GDP growth is due to aggregate consumption rate. In short, our people’s buying power is a dominant force that affects the growth of our GDP. Therefore, we can conclude that the estimated 3.8% increase of wages in 2021 is also meant to support workers’ buying power and aggregate consumption.
In the future, estimates of post- 2021 wage increase will not be the same as those in previous years. The new reference for minimum wage increase, Article 88.D Paragraph (2) of Law No. 11 of 2020 concerning Job Creation, no longer sets the formula for minimum wage increase based on economic growth or inflation rate. The formula is no longer based on Decent Satisfaction of Basic Necessities (Kebutuhan Hidup Layak – “KHL”) as in the previous Labor Law. Eliminating KHL from minimum wage calculations in the Job Creation Law will cause bias in the calculation, as minimum wage levels no longer reflect real consumption level of workers and their families.
The new law will definitely threaten workers’ buying power, which will in turn affect aggregate consumption, and in turn, economic growth. This is worsened by the fact that workers’ minimum wage in small and micro business fields is based on only a certain percentage of the people’s average consumption level, naturally much lower than currently applicable minimum wage levels.
The determination of KHL value based on the spirit of social dialog will never occur again among the actors of industrial relations, because the Job Creation Law specifically eliminates all such dialogs from any discussion when calculating minimum wages. KHL, with its implicit culture of social dialog, should be maintained in order to allow minimum wage to be determined according to the real consumption level of workers. Such an increase will also be well-measured if we use this basis, instead of using inflation level for goods and services as a whole. This latter, which also includes the inflation level in the price of luxury goods that common workers and their families do not consume, is inaccurate and dangerous.
KHL is nothing but a sweet memory now. Sayonara KHL!