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Indonesia Highest Regency / City Minimum Wage Karawang, Has Jumped 50% PDF Print E-mail
Written by Maizer   
Monday, 25 November 2019

Regency / City Minimum Wage (UMK) in Karawang Regency for 2020 is approved the highest in Indonesia. Setting minimum wages is indeed sensitive and has the potential to cause turmoil.

 

West Java Governor Ridwan Kamil has approved the 2020 UMK of West Java. UMK for Karawang Regency is set at Rp 4.59 million, the highest in Indonesia. Although it increased by 8.51% compared to this year, the workers claimed they were not satisfied.

 

This was also conveyed by the Chairman of the SPEE FSPMI PC of Karawang Regency, Dony Subiyantoro, said that he was not satisfied yet, West Java UMK especially Karawang was still far from the expectations of the workers.

 

Indonesia, since 2005-2020 UMK increase in Karawang amounted to 14.1% per year (CAGR).

 

The increase in the minimum wage occurred in 2013. MSEs in Karawang in that year were set at Rp 2 million, up to 57.6% compared to the previous year's MSEs.

 

In 2013, the case for a drastic increase in the minimum wage did not only occur in Karawang. The increase also occurred in DKI Jakarta, which reached 44%. This significant increase was allegedly due to fears of a wave of demonstrations from workers.

 

In addition, political nuances are also thick in them, especially approaching the elections in several regions. The policy of raising wages that are not fair is one form of populist policy that has the potential to have a negative impact on the economy. During that period the Government Regulation (PP) No. 78 of 2015 concerning wages had not yet been issued, which gave more certainty to wage increases.

 

A very high increase in wages is certainly very suffocating for businesses. In the end, this drastic increase did not make prosperous but instead made businesses go out of business or relocate to other places.

 

Determining the minimum wage is indeed not easy. If the wage is too small the purchasing power will not be boosted. However, if it is too high, it will certainly burden businesses.

 

Determination of the minimum wage must consider many factors in a comprehensive manner such as inflation rates, decent living needs, economic growth and equally important is labor productivity.

 

Let's take the example of labor productivity. Compared to neighboring countries, labor productivity growth in Indonesia is still lower than the Philippines and Vietnam.

 

This was also confirmed by former PPN Minister / Head of Bappenas Bambang Brodjonegoro. "Our productivity is relatively low compared to neighboring countries. Productivity is seen when talking about absorption of the workforce. Calculated from the added value, we are far below Malaysia, Thailand, the Philippines," Bambang said.

 

Quoting data from CEIC, since 2011-2017 the average growth of Indonesian labor productivity reached 3.73% annually. While Vietnam and the Philippines recorded higher growth respectively 11.48% and 4.5%.

 

West Java Provincial Government is experiencing a dilemma indeed, if the increase in minimum wages is too high it is feared that there will be massive factory relocation and mass layoffs. Another thing that is feared is that investors also prefer other regions to invest their capital.

 

This relocation trend had already been carried out by textile and textile product (TPT) entrepreneurs long before the relocation of the footwear industry from Banten and West Java. Central Java is the prime source of factory relocation because its UMP is relatively low when compared to other UMPs in Java.

 

The cities in question do have nominal wages that are quite high in Indonesia. For example, UMK Karawang in 2019 amounted to Rp4.23 million; Purwakarta Rp. 3.7 million, and Bekasi District Rp. 4.1 million. Meanwhile, MSEs in Central Java, on average half are below, UMP in Central Java alone in 2019 is still Rp 1.6 million.

 

It is feared that if wage increases are even higher, more factories will be relocating from West Java, especially Karawang. Karawang Regency is a large industrial area. Various labor-intensive industries ranging from the food industry, textiles to automotive and Original Equipment Manufacturer (OEM).

 

 

 
		
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