spicyayam

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Jan 12, 2009
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An interesting perspective on quora:

This goes back to when Indonesian was occupied by VOC or the Netherlands.


At the time, the dutch need cheap laborers to work on the plantations and trading route.


So they need to pay these people (slavery is sub-optimal since you degrade the dignity of both the supervisor and the victims) but you want to pay them so low that it will only feed them for that day and thus forcing them back to work the next day.

Another reason is political. To better control the majority of native Indonesian, the dutch encourage a 3 tier society, where the Europeans are at the top, Chinese Arabs and Indians are in the middle, and native Indonesian at the bottom. One way to make this happen is by limiting access to public service, another is income.


Now, during the independence, the cost structure of the government basically follows that of the Dutch, with very low paid native civil servants.


The nation leaders saw that it's good to keep this system because they didn't have a lot of money to pay civil servants when the country was just passing its independence and remember as a nation, Indonesia has been in a captive mindset for hundreds of years (either captive to the dutch or their local rulers), so they are used to a hand-to-mouth existence.


The traders, merchants, landowner and industrial class was also in the same mood, I've paid my workers pitiful salary yesterday why should i change now.


So that's the historical background on why Indonesian salary is so low.


And by the way, in addition to the captive mindset, the education, initiative, and productivity level of the workers would discourage anyone from paying them European labor worker's salary.


And from independence, for decades Indonesian has been without a middle class. A middle class meaning people are educated and can reliably represent the owners interest in a company.


I think that up to the 1980's, there still a lack of middle class in Indonesia. There are basically 4 class of society: low level government official who has no access to corruption and stay poor, laborers and farmers who stay poor, government official who learn to compensate their meager salary with massive corruption, and private company owners. Managers are rare since most company are managed directly by the owners.


When more people become managers in the 1990's, this pattern of paying meager salary for Indonesian continues.


But it gives rise to rampant corruption in all sector of society, if in the 1960 and 1970's it was government officials who learn to corrupt, then it was private managers who then learn, but by more subtle means that government officials.


Some old money families I met manage by this creed "whether I give people low salary or high salary, people will steal. So I let them have low salary".


In more modern times, this pattern continues.


For example, Jakarta has a city budget of US$ 5 billion, more than many top companies in Indonesia. Do you know that the official salary of Jakarta governor is less than $1,000 per month? Then what did his predecessor do?


a. They create a lot of non-salary official payments, fees for attending meetings, fees for sitting on a chair (they created a lot of chair), incentives from tax collection


b. They create a lot of "opportunity". As a resident of Jakarta, I would estimate that at least half of the city non-employee budget is wasted on corruption. How do i know? The speed and quality of construction being done now. Just around my house the city is revamping canal walls with concrete, creating large drain trenches, and this is done in many parts of the city. I cannot help but wonder, the city had the money to do this in the previous governor's terms, where did that money go?


Now, there are efforts to move Indonesian government salary to the Singaporean standard (i.e. Pay international market rate for government official and civil servant but zero tolerance for corruption and silly fees), but nooo, many Indonesians, especially old and powerful ones are just to use to having a corruptible system. For government official it presents massive upside, for businessman it provides a way to skirt regulation or change regulation per their business interest.

https://www.quora.com/Why-is-salary-level-in-Jakarta-and-Indonesia-so-low
 
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DenpasarHouse

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Aug 13, 2013
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Thanks spicyayam, very interesting, but I can't help but think that biggest contributor is population. There's just too many people, especially un/under educated people.

If your pembantu wants you to increase her wages, there are literally millions of others willing to take her place.

In Australia, in my opinion, it's still possible for a hard worker without an education to prosper through hard work. That's not the really the case in Indonesia.
 

balibule

Active Member
Feb 6, 2009
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Thanks spicyayam, very interesting, but I can't help but think that biggest contributor is population. There's just too many people, especially un/under educated people.

If your pembantu wants you to increase her wages, there are literally millions of others willing to take her place.

In Australia, in my opinion, it's still possible for a hard worker without an education to prosper through hard work. That's not the really the case in Indonesia.

The unemployment rate in Indonesia is 5.6% (Indonesia Unemployment Rate | 1982-2016 | Data | Chart | Calendar)
The unemployment rate in Australia is 5.6% (Australia Unemployment Rate | 1978-2016 | Data | Chart | Calendar)
 

Markit

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Sep 3, 2007
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I suspect his point is "supply and demand"? if the supply is the same (based on the unemployment/surplus people rate) then the rate of in/decrease in wages should be similar.
 

balibule

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Feb 6, 2009
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I'm not sure I get your point. We're discussing why wages are low, not the unemployment rate.

You say that population is the reason for low salaries. I don't think that is true otherwise the unemployment rate would have been higher which it is not. The unemployment rate for Indonesia is actually the same as Australia who earn a better living.
 

DenpasarHouse

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Aug 13, 2013
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Ok thanks, I see what you mean.

I don't think anyone denies that there is an abundance of unskilled labour available in Indonesia, but I don't know how to reconcile that with the low unemployment rate.

Possibly there's a problem with comparing what constitutes "unemployment" in Indonesia compared to western countries. For example, there's a whole swathe of people employed in jobs that simply don't exist in Western countries for the simple fact that the wages are low. If you increase the wages, the jobs cease to exist. If it was possible to know the percentage of people employed in these types of jobs, it might be more accurate to add that to the unemployment rate and then compare it with western countries.
 

DenpasarHouse

Active Member
Aug 13, 2013
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So to summarise and to address the question asked by the OP.

Wages are so low in Indonesia because that keeps the unemployment rate low. This in turn prevents a whole raft of social problems caused by high unemployment.

So it's not that the population is too large (as I said earlier), it's that the proportion of unskilled workers is too large and therefore the economy has no use for them unless their wages are low.
 
I don't know how to reconcile that with the low unemployment rate.
Be aware that the statistics concerning unemployment published by the Badan Pusat Statistik are just a joke and don't reflect the reality. It boils down to the definition of what unemployment is.

Basically, to be considered employed by BPS and therefore not being accounted for in the statistics for unemployment you need to be:

1. More than fifteen year old,
2. Having been working MORE THAN 1 HOUR IN THE LAST WEEK,


Excerpt of the definition of employment by BPS:

Penduduk usia kerja adalah penduduk berumur 15 tahun dan lebih.
Penduduk yang termasuk angkatan kerja adalah penduduk usia kerja (15 tahun dan lebih) yang bekerja, atau punya pekerjaan namun sementara tidak bekerja dan pengangguran.
Penduduk yang termasuk bukan angkatan kerja adalah penduduk usia kerja (15 tahun dan lebih) yang masih sekolah, mengurus rumah tangga atau melaksanakan kegiatan lainnya selain kegiatan pribadi.
Bekerja adalah kegiatan ekonomi yang dilakukan oleh seseorang dengan maksud memperoleh atau membantu memperoleh pendapatan atau keuntungan, paling sedikit 1 jam (tidak terputus) dalam seminggu yang lalu. Kegiatan tersebut termasuk pola kegiatan pekerja tak dibayar yang membantu dalam suatu usaha/kegiatan ekonomi.

Source: https://www.bps.go.id/Subjek/view/id/6

In reality if you would be using the same definition as the Australian Manpower Minister uses, you would have a great difference in between the two ratios.
 

balibule

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Feb 6, 2009
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Maybe it is because Indonesia, a developing country, is a big player in the wrong industries which require low skilled and low paid workers such as mining, farming etc ... when compared to Singapore or other developed countries who rely on technology, end-user products, banking etc ... .

The Indonesian government is doing an effort on getting companies to stop exporting raw materials and instead force those companies to process the raw materials locally before exporting.
 

Markit

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Sep 3, 2007
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Seems to this person that Indonesia is ideally suited to take up the gauntlet that China has dropped with its increasing standards of living, wages and a ballooning middle class.

20 years ago China was where Indonesia is now in many ways and look at them now. The world still needs cheap labor and a willing working class so don't be so quick to judge Indonesia as losing in the race just yet.

All of the infrastructure a developing country needs first has to happen here before Indo can compete with the likes of Singapore/China/Malaysia/et al. Not going to be as easy with 16000 little islands thrown all over the place IMHO.
 

spicyayam

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Jan 12, 2009
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I met a Chinese guy on holiday here and he told me he worked as a waiter in China. I thought that was pretty impressive to be able to save enough money to travel overseas. It wasn't so long ago it was difficult for Chinese to travel overseas and now they are buying up a lot of property in Australia (and around the world) even though they have a limit of sending $50K out of the country.

There is something very unique to Chinese to want to study/work/save. Look at the ethnic Chinese here. I don't know what it is exactly. Maybe it is the endemic corruption here that makes people always want to take the easy way.

It is the laid back attitude that makes us want to live here and not in China. The people who have money don't have to worry too much about the education system here as they will just send their kids overseas. There is probably lack of motivation from the top to make serious change, otherwise they would lose their cheap pools of labour to clean their house, work in their business.
 

Markit

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Sep 3, 2007
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After all the reading and careful consideration I'm minded to suggest it's better that Indonesia doesn't even try to compete on the global markets.

They should just muddle along the way they are on their little islands, in the sun, eating fish and rice and happy.

If "happy" is the only thing you are really good at, well that's not so bad is it?
 

Steve Rossell

Member
Apr 18, 2015
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I agree with you Markit. I was just this evening talking with an expat business person that was decrying the failure of what they considered an "incentive" program and that in fact productivity decreased because of it. I happened to mention that maybe they are just working smarter for themselves. i.e. work a bit harder and quicker then not work any more hours than they need, which in fact gave them more time that they could spend with family, friends and community.
Now I consider that intelligent.