Tens of thousands of Indonesians took to the streets to protest for greater economic protections for Indonesia’s urban working poor. Among their demands were requirements for employers to dole out pensions, health insurance and, most importantly, a higher minimum wage to be set at $200 a month (a figure that actually is above the average salary of an Indonesian currently and 40% above the current minimum wage).
For the undereducated lower-middle class Indonesian working in a Nike factory in Jakarta, these reforms may seem beneficial. But, on a closer glance, these reforms would hurt not only the Indonesia economy as a whole but more importantly the very low-skilled labor protesting for the reforms.
Most of these workers are employed in multinational corporations doing low-skilled industrial work. For these companies, Indonesia is not an ideal place to do business. It is rampant with corruption, its laborers are immensely low skilled and have a worse work ethic compared with the rest of Southeast Asia.
Thus, instead of trying to test how far Indonesia can push its multinational investors, Indonesia should focus on staying attractive for FDI. After all, Myanmar has recently opened up to foreign trade and Vietnam and Cambodia have been rapidly improving infrastructure in last few years. All three of these have much lower living and thus labor costs and have fewer economic regulations than what Indonesians are proposing. If such economic regulations are imposed in Indonesia, it will only be a matter of time before these corporations realize that the costs of re-establishing themselves in one of the three above mentioned nations would be cheaper than continuing to pay more for less productive Indonesian workers.
To be fair, a minimum wage increase most likely would not deter these companies from operating in Indonesia. After all, they tend to pay workers well above the current minimum wage. The biggest push factor for them might be the new host of regulations and social services that workers and organized labor are pushing for. After all, the most attractive aspect of low-skilled labor is that it is expendable. When a worker is too old to benefit the company economically or falls sick or gets injured and is unable to contribute positively, he can be relinquished at no cost to the company. Unlike in developed nations, corporations in developing nations with few economic regulations can be pure and simply profit driven.
It should be noted that Indonesia has one of the highest wealth inequalities in the world and, as such, some of the demands of workers seem legitimate. However, Indonesia is an industrializing nation. All post-Industrial nations reached their level of economic development through a low wage, high economic inequality period during their Industrialization. Welfare and an increased standard of living across the board should be the long-term goal of any legitimate government but the industrialization period must be regarded as a necessary means to this end.