Indonesia’s economic growth is being held back by populism

Ross McLeod, ANU Indonesia Project Adjunct Associate Professor, receives a mention in the Economist, Awaiting the fanfare: Indonesia’s economic growth is being held back by populism. It was based from the December 2018 Survey of the Bulletin of Indonesian Economic Studies.

“Local labour can also be pricey. A survey of firms with ties to Japan by the Japan External Trade Organisation, a government body, shows that the wages of Indonesian manufacturing workers are 45% higher than those of their Vietnamese counterparts. That is partly due to rocketing minimum wages, which are set by local government. Politicians raise the floor to win votes. As a result, the average minimum wage as a share of the average wage grew from 60% in 2008 to around 90% in 2018, according to Ross McLeod of Australian National University. In some districts it exceeds the average salary for the country as a whole by a fifth. This discourages hiring, pushing workers into the informal sector, or drives firms to ignore the rules. To stop this trend the central government capped increases in minimum wages in 2015, but stopped short of reversing previous rises.”

Photo credit: www.jevuska.com

Photo credit: www.jevuska.com