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Indonesian incomes: Something to think about

25 November 2011

As Americans celebrate Thanksgiving, I am looking at the minimum wage in Indonesia.

The minimum wage differs in different parts of this huge country (the fourth largest country in the world in terms of population), but in Jakarta today the governor is expected to announce an increase — to Rp 1,529,000 ($170 U.S.) per month for next year.

Yes, $170 per month. Just imagine that.

The Jakarta Post said yesterday that the “current minimum wage for an unmarried worker with under one year’s work experience is Rp 1,290,000 per month.” At today’s exchange rate, that is $142 per month. That’s $4.73 per day (using a 30-day month).

Please keep in mind that these are Jakarta wages. The minimum is lower elsewhere.

So when I mention that I had a delightful lunch for less than $5, including a giant glass of fresh mango juice (at about $2 U.S.), be aware that the average worker here will not be eating in the same place where I ate. I’m paying about $2/gallon for gasoline (and the price is lower for anyone riding a motorbike, or even a cheaper car than mine, because the government subsidizes the price) — but that is a lot of money if you’re only making $4.73 per day.

Meanwhile, in today’s Jakarta Post, I saw a list of the richest people in Indonesia. Each one of the top 10 is worth more than $2 billion (in U.S. dollars). We talk about the income disparity in America, but the disparity between the top and the bottom may be much worse in the developing countries such as Indonesia.

This is why middle-class people here can have a maid. (I employ a full-time driver and a part-time maid.)

Read more about the minimum wage in Indonesia.

The low wages here make Indonesia attractive to foreign manufacturers:

Indonesia, Southeast Asia’s largest economy, has for the past three years enjoyed new investments and orders for textiles, garments and footwear, as many foreign companies have relocated their plants from Vietnam and China following the steep increases in labor costs there. (Source)

Go to the bottom of that story to see charts showing Indonesia’s revenues (2006–present) from production of clothing and shoes.

2 Comments leave one →
  1. 29 November 2011 2:35 am

    Very interesting. I have to add, though, that while the minimum income might appear very low, the cost of living is cheaper than that of America. I often go on a debate on how unfair the exchange rate is. The buying power of a dollar should not triple just because it is in another country. That is, if a soda is RP 500 in Indonesia and a dollar in America, then RP 500 should be equivalent to a dollar. It creates a huge misunderstanding when local currency is converted to dollar currency because compared to the buying power the currency has in the local places, it is not as small as the conversion makes it seem.

    However, I have to agree with you that the huge gap between the rich and the poor.

  2. 29 November 2011 6:47 pm

    @Faithful: You are correct, we should always consider buying power. I like to find out the cost of a decent (but not fancy) lunch in a country. This is a little tricky in SE Asia because there is so much hawker food (and much of it is delicious), but that’s not the same as sitting down in a little cafe and having a bit more comfort. In Bandung, I can easily have a cafe lunch for less than $6 U.S., and that will include a big glass of fresh fruit juice. If I have Teh Botol to drink instead, my nice lunch might cost as little as $3.

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