Minimum wages should be based on inflation: Hipmi

The Jakarta Post, Jakarta

Regional minimum wages should be adjusted accordingly to the inflation rate, a business association says, suggesting a maximum hike of only 15 percent to avoid further costs to businesses, which are also facing rising inflation and interest rates.

Regional administrations should also discuss any plans of a wage hike with the local business community, as it is businesses who fully understand local economic conditions, the Association of Young Indonesian Businessmen (HIPMI) said on Friday.

"Our suggestion is that any wage hike should be inflation- adjusted. If the inflation rate is now at 15 percent, then the wage hike should be somewhere within that range, between 10 percent and 15 percent," HIPMI chairman Sandiaga S. Uno said.

"We would also prefer it if any wage hike plans were first discussed with us, as we have found some administrations planning to raise their minimum wage so high that it will surely cause a sudden increase in our costs of doing business."

Sandiaga said that several HIPMI members, especially those in the manufacturing sector, were already reporting an increase in their production costs of between 15 percent and 20 percent due to the recent fuel price hike and the wage hikes already implemented in each company.

Inflation has from January to October accumulated to 15.65 percent, after the government raised fuel prices in March and October. On a year-on-year basis, inflation in October reached 17.89 percent.

The Jakarta administration has decided to raise the minimum wage for workers by 15 percent to Rp 819,100 (US$82), effective next year, while other administrations are also in the process of adjusting their minimum wages.

Workers in several regencies have, however, been asking their administrations to raise the minimum wage by up to 30 percent, with some even asking them to double wages.

Sandiaga warned that if administrations continued to set wage hikes independently beyond the local business community's capacity, it was possible that businesses would leave the regions with high minimum wages and restrictive regulations.

"Several HIPMI members are already sharing information on which regions are more profitable to relocate their production base. So this (setting high wages rises) would be a disadvantage for the regions themselves," he said.

HIPMI is therefore urging the local administrations to set a reasonable wage hike, and the central government to continue its efforts in reducing the country's high cost economy, including through eradicating red-tape and illegal fees, and providing easier financing access to small-and medium-seized enterprises.

Sandiaga said, however, that businesses would be unlikely to lay off any workers even if the wage hike was considered too high, as it would be even more costlier.

"We will probably cut our profit margin in the meantime to get through the current unfavorable situation, with layoffs as a last resort," he said. "This is because training new workers is costly, not to mention providing compensation for workers who are laid off."

HIPMI groups together some 25,000 young entrepreneurs across the country.