Better Work Indonesia supports West Java tripartite discussion on wage system

The ILO through its Better Work Indonesia Programme supported efforts taken by the key labour actors in West Java to address labour issues in its garment and textile industry, including the wage system and mechanism.

News | Jakarta, Indonesia | 22 August 2019
The employment dialogue held with the Governor and key labour actors in West Java
The key labour actors in West Java Province of Indonesia held a dialogue in July to discuss improvements into the wage policy of West Java. Held in July at the Governor’s Office, the discussion was attended by the tripartite constituents—provincial manpower officer as well as workers’ and employers’ organizations—and was led by Ridwan Kamil, Governor of West Java.

West Java government will encourage industry to improve its technology as a way to reduce cost. Meanwhile the government will focus on enhancing the infrastructure to reduce transportation costs that can be used to provide higher wages."

Ridwan Kamil, Governor of West Java
This tripartite discussion titled “Future Search Dialogue” was held as a response to the ongoing geographical or regional shift with an increasingly large number of factories moving from West Java and Greater Area of Jakarta to Central Java. Despite new investments and opening of new factories in the country, some factories close down, reduce the number of their workers or move to other areas of Java with a lower minimum wages level.

“The significant increase of minimum wage in West Java for the past four years has contributed to the export decline, factory closure and relocation that mostly occur in garment and textile sector. Since garment and textile industries are labour-intensive industries, these closures and relocations have affected more than 170,000 workers, mainly in Karawang and Bekasi regencies,” explained Muhammad Ade Afriandi, Head of Labour Office of West Java Province.

There are many aspects that influence the success of the sector. Garment factories often tell us that custom requirements, taxes and electricity costs are some of the issues together with wages that influence the financial sustainability of factories."

Maria Joao Vasquez, Better Work Indonesia’s programme manager
Presenting its recommendations on wage policy, the ILO through its Better Work Indonesia programme was invited to the dialogue. The wage recommendations were jointly developed by the ILO and the National Wage Council in the last few years.

Maria Joao Vasquez, Better Work Indonesia’s programme manager, reminded the participants of the discussion that while some factories are closing down, others factories in the same time are opening and expanding their business as shown by the increase of the total garment export levels from 2018 to 2019. “There are many aspects that influence the success of the sector. Garment factories often tell us that custom requirements, taxes and electricity costs are some of the issues together with wages that influence the financial sustainability of factories,” told Maria.

Drawing from the insights of discussion, Ridwan Kamil, Governor of West Java, emphasized actions that would be taken by the provincial government to create more business-friendly environment in West Java. “West Java government will encourage industry to improve its technology as a way to reduce cost. Meanwhile the government will focus on enhancing the infrastructure to reduce transportation costs that can be used to provide higher wages,” he stated.

The Governor Ridwan added that the West Java Province will develop a regional mapping based on the industrial cluster (capital or labour intensive). He also stressed out the urgency to simplify the hierarchy of decentralization on wages policy. “I would like recommend the central government to centralize wages policy based on inputs from local governments.”

The ILO’s Senior Wage Specialist, Daniel Kostzer, said that the current minimum wage system in Indonesia is very heterogeneous across regions. As a result, it is found difficult to relate with the size, complexity, potential, productivity, employment level and/or other economic indicators.

Wage discussions should be fair and evidence-based."

Daniel Kostzer, ILO’s Senior Wage Specialist

He concluded that the best minimum wage is the one that leaves all parties unhappy, but not so unhappy that they leave the negotiation. “Wage discussions should be fair and evidence-based,” he exclaimed.

Indonesia’s garment and textile exports accounted for USD7.9 billion or equal with 4.7 percent of its total export in 2017. West Java is known as the biggest producer of garment and textile products for both export and internal consumptions. To date, the garment sector worldwide is currently going through a slowdown moment with new consumer preferences, trade wars and on-line shopping affecting the way global supply chains work.