Politicizing the Minimum Wage: Wage Councils, Worker Mobilization, and Local Elections in Indonesia

• Published date: 01 June 2019
• Author: Teri L. Caraway,Michele Ford,Oanh K. Nguyen
• DOI: 10.1177/0032329219838917
• Date: 01 June 2019
• Subject Matter: Articles

https://doi.org/10.1177/0032329219838917

Politics & Society

2019, Vol. 47(2) 251 –276

© The Author(s) 2019

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DOI: 10.1177/0032329219838917

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Article

Politicizing the Minimum

Wage: Wage Councils,

Worker Mobilization, and

Local Elections in Indonesia

Teri L. Caraway

University of Minnesota, Twin Cities

Michele Ford

University of Sydney

Oanh K. Nguyen

University of Minnesota, Twin Cities

Abstract

Indonesia’s weak labor movement transformed local wage councils from institutions

of wage restraint into institutions that delivered generous wage increases. This

article argues that the arrival of direct elections created an opportunity for unions

to leverage elections to alter the balance of power on the wage councils. Activating

that leverage required increased contentiousness and coordination among unions.

As unions mobilized around wages, conflict with capital intensified and produced

disruptive protests that led incumbents to side with workers. Unions also developed

innovative tactics to sustain momentum in nonelection years. As unions turned

the wage councils in their favor, employers fought back by shifting the scale of the

conflict to the national level; the result was the recentralization of wage setting and

more modest increases. In a global context of ever weakening organized labor, the

Indonesian case shows how weak unions can gain power by mobilizing politically at

the local level.

Keywords

minimum wages, labor movements, decentralization, tripartite institutions, Indonesian

politics

Corresponding Author:

Teri L. Caraway, University of Minnesota, Twin Cities, 1414 Social Science Building, 267 19th Avenue

South, Minneapolis, MN 55455, USA.

Email: caraway@umn.edu

838917PASXXX10.1177/0032329219838917Politics & SocietyCaraway et al.

research-article2019

252 Politics & Society 47(2)

For almost two decades, tripartite wage councils—consisting of representatives from

the government, employers, and unions—have met annually in more than one hundred

districts and municipalities to set minimum wages in Indonesia. Firm-level collective

bargaining is weak, and the wage councils, as de facto collective bargaining institu-

tions for an entire jurisdiction, were until recently the country’s most important wage-

setting institution.1 For nearly ten years, the wage councils exercised wage restraint;

average increases exceeded inflation by about 2.5 percent in most years between 2003

and 2012. Those small but steady gains were insufficient to ensure that minimum

wages met the legal benchmark of progress toward the government-defined threshold

of a decent living standard (kebutuhan hidup layak, or KHL). Frustrated by years of

wage restraint, unions sought to transform the wage councils into institutions that

delivered large real wage increases to workers. They succeeded in winning double-

digit real increases for several years before the central government stepped in to recen-

tralize wage setting.

The transformation of the wage councils is surprising because Indonesia’s unions

perform poorly on three classic measures of organizational power—union density,

union concentration, and collective bargaining coverage.2 According to the minister of

manpower, union density declined drastically from around 3.4 million in 2007 to

around 2.7 million in 2017.3 In a workforce numbering around 134 million in early

2018, union density is therefore just above 2 percent. Only some 7,000 companies out

of a total of 230,000 have unions.4 Membership is split across dozens of federations

and hundreds of unaffiliated unions.5 Indonesia’s unions have not made up for their

small numbers with high levels of collective bargaining coverage or with strong col-

lective bargaining agreements.6 Nor have they compensated for their organizational

weakness by forming alliances with electorally competitive political parties. In

Indonesia, no major political party has a strong connection to any of the unions, and

efforts to found electorally viable labor-based parties have failed.7 In such circum-

stances, scholars would not expect tripartite institutions to deliver significant gains to

workers.8

How did an organizationally weak and politically isolated labor movement trans-

form the wage councils? Tripartite wage councils gave unions an institutional means

to negotiate wages. But to achieve more than modest improvements in wages, unions

needed the support of local executives and governors who controlled the government

representatives on the wage councils and had the authority to accept or reject recom-

mendations from the councils. Changing the balance of power on the councils was a

multistep and multicausal process. Direct elections gave incumbent executives an

incentive to woo voters and therefore created a political opportunity for unions in

industrial and metropolitan areas, where unions were stronger, to alter the calculus of

the incumbents. For several years, unions did not fully exploit the new opportunity;

they were internally divided and had not made the wage councils a priority. By 2010,

however, they strengthened their cooperation at the local level and began to mount

wage campaigns that turned up the pressure on local governments. As unions became

more contentious, local executives began to sign off on more generous minimum wage