Minimum Wages in Indonesia

In the United States, minimum wages are set by Congress. But in other countries, circumstances differ. Take Indonesia, for instance. There, minimum wages are set every year by wage councils. The councils consist of representatives from three parties: unions, employers, and the government.

Normally, annual increases in minimum wages in Indonesia are modest—around 2.5%. But in 2012–13, something extraordinary happened: the minimum wage increased by leaps and bounds. In Jakarta, for example, the minimum increased by 45%.

What made the double-digit increases possible? Simply put, unions in Indonesia leveraged their political power. In a first step, they set aside internal divisions and became unified around the minimum-wage issue. Then they pressured local elected officials, becoming more and more contentious in their activism. Unions were also able to play one locality off the other, in what amounted to a race to the top.

The story of the minimum-wage gains in Indonesia is told in a recent article in Politics & Society by a trio of authors: Teri L. Caraway, a professor of political science at the University of Minnesota; Michele Ford, a professor of Southeast Asian studies at the University of Sydney; and Oanh K. Nguyen, a PhD candidate in the Department of Political Science at the University of Minnesota. As the authors point out, the success of the unions was surprising: unions in Indonesia perform poorly on traditional measures of organizational power. But by playing politics, plain and simple, they secured higher wages for their members. In other words, they fought hard. "It was through politics—not striving for consensus behind closed doors at the negotiating table—that unions altered the balance of power in their favor," write the authors.

Employers naturally fought back, and in recent years the increases in the minimum have returned to their usual levels. Still, the case of Indonesia shows how even apparently weak unions, by organizing and finding ways to exert political pressure, can win at the bargaining table.