News / Asia

Labor Unrest Unsettles Booming Indonesia

Freeport McMoRan Copper & Gold Inc.'s workers await bus at Gorong Gorong station in Timika, Papua province, Indonesia, Jan. 3, 2012.
Freeport McMoRan Copper & Gold Inc.'s workers await bus at Gorong Gorong station in Timika, Papua province, Indonesia, Jan. 3, 2012.

Indonesia has some of the cheapest wages in Asia, making it an attractive destination for companies feeling the pinch from rising labor costs in China and elsewhere in the region. The standard minimum wage in Jakarta is $170 a month compared to $240 in Shenzhen.

It also has a booming economy: Consumer-goods manufacturers and commodities exporters hauled in record profits in 2011.

But labor unions have taken notice, and now they're demanding a bigger slice of company revenues.

In late January, months of unrest that accompanied demands for wage increases culminated in a protest by 20,000 workers at an industrial estate on the outskirts of Jakarta, effectively shutting down scores of businesses.

In response, the government and the Indonesian Employers Association, a lobbying group also known as Apindo, agreed to workers’ demands for a 15-percent salary hike.

Apindo's deputy chairman Hasanuddin Rachman says while his group supports raising wages, not all companies can afford to.

"If the company is able to pay, please pay, but we have to protect SMA, small and medium enterprise, who are not able to pay this minimum wage," he says.

Many companies plead poverty when negotiating employee wages, but January’s settlement with Apindo and a high-profile agreement with the U.S.-based mining giant Freeport McMoRan have encouraged labor unions looking to raise salaries.

Freeport's Indonesia operations bring in about 30 percent of the company’s global revenue, which totaled more than $5 billion in 2010. Its Indonesia-based employees received wages starting at $1.50 an hour before they negotiated a 37-percent increase in December.

Labor unions are also demanding a renegotiation of 2003 labor laws that mandate high severance payments for terminated workers, a regulation many companies simply ignore or circumvent by hiring contract laborers.

The result, say union leaders, is a significant decline in the number of permanent workers since 2003. Whereas government Officials have discussed revising the regulations, talks have broken down in recent weeks, and lawmakers now say they have no intention of revising the law.

A powerful alliance of the country’s main labor unions has warned that, until reforms are implemented, they will continue to stage rallies and strikes.

Hasanuddin worries about the potential impact the ongoing unrest would have on foreign investors.

“They’re concerned that if the situation is like this they’ll move to another country," he says.

Japanese and South Korean businesses have recently filed complaints with Indonesian authorities claim the unrest has severely harmed their businesses.

"So that’s why we have to take care of this situation," says Hasanuddin. "We also persuasively talk to Korean Embassy, Japan Embassy: ‘Please don’t go from Indonesia. We will settle this problem.’”

Hasanuddin has appealed to the government to reassure investors that it is serious about taking action, but so far there is little to indicate that negotiations are nearing a resolution, which means labor unrest is likely to continue.

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