Indonesia Labour Market Under Pressure to Compete

With lower wages, more labor market stability and a longer working week, the pressure is on.


Senin, 02 Nov 2015 18:00 WIB


Lien Hoang and Erric Permana

Indonesian labour. (Photo: Bambang Hari/KBR)

Indonesian labour. (Photo: Bambang Hari/KBR)

The deadline for the single economic market in ASEAN, the Association of Southeast Asian Nations, is looming.

With it comes rising concerns about labour competitiveness, as countries like Indonesia look to keep up with dynmaic markets such as those in Vietnam.

With lower wages, more labor market stability and a longer working week, the pressure is on. 

From Saigon and Jakarta, reporters Lien Hoang and Eric Permana find out more. 

Thousands of workers are shouting outside Indonesia’s Presidential Palace, protesting for better wages and the right to strike.

Sunarno, the Secretary General of the Indonesian Labour Alliance Union, says they are protesting about the conditions of labor in Indonesia. 

“Of 112 million workers in Indonesia, only 40 million are working in the formal sector and the others are working in the non-formal sector,” he says, “It means the laborers do not have any guarantee of a job. And many of them are paid under the minimum wage.”

But the irony is that these protests could mean fewer jobs for Indonesians.

So many labor strikes have seen the Indonesian Employers Association, or APINDO, threaten to move their businesses to Vietnam.

It is part of a larger trend, as businesses start to move more freely around ASEAN.

The so-called ASEAN Economic Community, or AEC, effective as of the end of this year, will see the free flow of labour, goods and services between the 10 member countries. 

It’s creating an increasingly competitive regional labor market and Vietnam looks attractive for several reasons, says APINDO representative Anthony Hilman.

“As we know, the legal certainty for business in Indonesia is very unorganized. There are so many strikes and protests too. Besides that, the annual wage rise in Indonesia is unpredictable for us,” he  says, “And then there are some issues about productivity where we cannot compare with Vietnam.  For example, working hours in Vietnam is 48 hours a week, in Indonesia it’s 40 hours.”

Unlike the democracy in Indonesia, Vietnam is controlled by one party. This means labor strikes are rare, according to Huynh Quan, who runs the human resource consultancy, NVM in Vietnam.

“Vietnam is a communist country, they protect or they have mechanisms to control the strike very well to make sure they do not violate the party,” he says, “It would violate the government, so they have the mechanism to control the strike very well.”

Few strikes and one-party rule gives companies a sense of certainty and reduces economic risk, says Australian Chamber of Commerce president Brian O’Reilly.

“It does bring a sense of stability. You look at the problems in the Philippines, you look at the problems in Indonesia,” he says, “Purely from a business perspective, businesses don’t want risk. Vietnam politically is a stable country. It has got no problems with so-called terrorism. And I think it’s a big positive for Vietnam.”

O’Reilly and others say Vietnam has an advantage because labor is cheap. The minimum wage is about $150 a month, compared with $250 in Indonesia.

Vietnam has a young workforce that is willing to get more education and training to qualify for better jobs.

At the same, Vietnam has one more major tool under its belt: the Trans-Pacific Partnership.

If approved, it would be the biggest trade deal in history. Since Indonesia is not a member, the deal would make Vietnam’s exports cheaper to the United States, including clothes and shoes.

Indonesia Manpower Minster, Hanif Dhakiri, is helping companies to compete in the face of all this pressure.

From tourism to medicine, he is pushing each sector to apply national certifications that prove the quality of their employees.

“I hope with certification and competency standards, our workers can be competitive,” he says, “Many of our professionals do not have formal education. If they were not given the competency standards and national qualifications, they can’t be competitive.” 

Indonesia is being forced to go through some growing pains to beat Vietnam for investment.

But if business becomes more productive, then the AEC might have the effect that planners wanted.



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