Labor unions in Indonesia are becoming more militant -- at times aided by the government -- in demanding higher salaries and in claiming their share of the national economic pie that has grown so rapidly these last few years. As is typical of many emerging market economies, Indonesia's growing prosperity has been accompanied by a widening income gap between the rich and poor, and unions blame this on the country's cheap labor policy.
A major industrial strike Tuesday in Medan, Indonesia's third-largest city on the island of Sumatra, paralyzed the local economy as unionists swept through factories to force workers to join the strike. They were joined by workers in the nearby Belawan port that virtually halted all operations. Anti-riot police were present but did little to prevent activists from forcing their way into factory grounds, all while employers and security guards watched on. The police did, however, ensure that the strikers' march through town was peaceful.
The workers in Medan are demanding that the provincial government of North Sumatra annul its decision to increase the regional minimum wage to Rp 1.375 million (U.S.$144) a month beginning in January, demanding instead a much larger increase to at least Rp 2.2 million. That's the same level that their counterparts in Jakarta, the Indonesian capital, have recently secured.
Employers remain reluctant to concede hefty pay increases, cautioning that Indonesia will price itself out of the global competition. So they're only agreeing to small hikes. But now, instead of fighting only with the unions, they also have to convince local governments, too. Many local administrations, which enjoy full autonomy from the central government, are manifestly siding with workers as they help mediate new minimum wage levels between unions and management representatives for 2013.
Jakarta has set the tone by awarding an unprecedented 44 percent increase. Jakarta Governor Joko Widodo, freshly elected in October, justified the increase by pointing out that the Rp 2.2 million minimum wage is the basic cost of living in the city. When the employers' representatives walked out of the negotiations, the union and the government decided to grant the large pay increase unilaterally. Employers have called this move illegal and are suing the Jakarta government in administrative court.
Increases in minimum wages in the past had been moderate, usually just large enough to keep up with the annual inflation rate. In most cases, however, the minimum wage falls short of the official calculation of the basic costs of living. Employers have argued for incremental increases each year to keep Indonesia attractive to foreign investors.
But with Indonesia's economy growing consistently at above six percent in the last three years, and the nation becoming visibly more prosperous, workers at the lowest rung of the ladder feel left out and are questioning the wisdom of the government's cheap labor policy.
The workers' growing militancy became apparent in October, when they organized a major strike to demand a complete ban on outsourcing practices. The massive nationwide protests turned ugly when -- for the first time -- some activists broke into factories and forced workers to join in their industrial action.
To make matters even worse for employers, the government caved in to the workers' demand and has since issued a ban on all outsourcing practices. Emboldened by their success, unions in various provinces are now demanding hefty increases in minimum wages for 2013.
Employers have not sat quietly in the face of the more militant workers. Members of the Association of Indonesian Employers (Apindo) have threatened to lockout the factories in the face of union vandalism. They claimed that the union activists in October forced their way into factories, where they harassed and intimidated their workers into joining the strikes. They have also threatened to shut down their factories altogether and to relocate them, either to other parts of Indonesia or to other Asian countries, if the police or the military fail to intervene in protect their property. In response to the 44 percent increase in the minimum wage in Jakarta, Apindo has warned that as many as 100,000 jobs in the textile industry alone are on the line if the government enforces the hikes.
But workers are undeterred, and appear determined to call Apindo's bluff.
How this confrontation between workers and employers -- with the government increasingly siding with the former -- will play out will only be known later in the year.
Photo by ROMEO GACAD/AFP/GettyImages
Transitions is the group blog of the Democracy Lab channel, a collaboration between Foreign Policy and the Legatum Institute.