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Southeast Asia Responds to Worker Demands with Labor Reforms
 

By Ames Gross and Catherine Matacic  4/15/2013
 
 

The founding members of the Association of Southeast Asian Nations, or ASEAN (Indonesia, Malaysia, the Philippines, Singapore and Thailand), have all experienced remarkable economic growth since the organization was founded, in 1967. Singapore alone went from a gross domestic product (GDP) of $1.3 billion to $239.7 billion in 2011. It now has the highest per capita income of any country on the planet.

And while the other original ASEAN countries may not be as prosperous as Singapore, they are enjoying growth rates unheard of in the rest of the world. Malaysia’s GDP grew 5.6 percent in 2012, and Indonesia’s grew 6.4 percent, compared with the United States’ 2.2 percent.

However, wages in Southeast Asia (except Singapore) are among the lowest globally.

A worker in Indonesia makes an average of $113 a month, about one-half of what a worker now makes in China. Low wages are leading to increased union mobilization across Southeast Asia, and strikes are increasingly common. Some politicians have responded by establishing higher minimum wages and better worker protections. Indonesia and Thailand increased the minimum wage in 2012, while Malaysia set a minimum wage for the first time in May of that year.

As wages rise, so does the purchasing power of young workers. Apart from Singapore and Thailand, Southeast Asian countries are not yet plagued by the “graying” workforce that has emerged in Japan, Korea and even China. The average age of Philippines workers is 25; in China it’s 37. A young, wealthy workforce is more willing to spend wages on consumption, further boosting economic growth.

But what can an American or European HR manager expect when looking to hire in these countries? A lack of skilled labor is the first pitfall. For example, in Indonesia less than 9 percent of workers have a formal university education, and less than one-third have completed primary school. Even Southeast Asian employees with sufficient education often lack so-called soft skills—e.g., the abilities to communicate well, to solve problems and to show initiative. Rarely will a Thai employee question a superior, for example, even if the superior is clearly using an ineffective approach to solve a problem.

As a result, local workers with the right combination of education and skills are highly sought after, and the competition for them is fierce.

Labor Unrest in Indonesia

Indonesia’s 118 million workers participated in strikes in November and December 2012, protesting low wages and poor benefits. In response, Jakarta’s governor approved a 44 percent increase in the monthly minimum wage, bringing Jakarta’s to $225 a month. More than 25 provinces, regencies and cities across Indonesia followed suit, raising regional minimum wages by an average of 30 percent.

But delays in implementing the wage increases have led to fresh rounds of worker protests and strikes. In February 2013 workers in Jakarta marched for higher wages, access to pension systems and health insurance.

Most Indonesian employers are loath to increase benefits and wages—but not for the usual reasons. Indonesia is among the most expensive places in the world to terminate employees. After being dismissed, regular employees are eligible for severance pay of one month’s wages plus one month for every year worked. Employees who have spent more than three years with one company are eligible for even more. The highest possible severance payment under the 2003 Manpower Act is 32 months’ worth of wages.

Further, each time the minimum wage jumps, so do these severance payments. It is estimated that a 10 percent increase in Indonesia’s minimum wage causes formal employment to drop by 1 percent. As the cost of firing regular workers goes up, more employers hire temporary and informal workers. As much as two-thirds of the active labor force belongs to the informal sector economy, according to the World Bank.

Philippines Mandates New Labor Protections

In March 2013, Philippines President Benigno “Noynoy” Aquino signed two new labor laws that give workers more say in how they are treated.

One, the Act Strengthening Tripartism, requires that employers, employees and the government be involved when setting national labor policies. The new law is similar to one that has been in place in Singapore for nearly a decade.

The act also establishes a National Tripartite Industrial Peace Council under the country’s Department of Labor and Employment (DOLE). The council, which will be composed of representatives from the government, employers and employees, will monitor labor conventions and codes of conduct and will advise DOLE on legislation affecting employment.

The second law calls for mandatory conciliation in all labor disputes. Conciliation involves 30-day mediation and arbitration sessions, during which employers and employees must make every effort to settle disputes. DOLE representatives hope that mandatory conciliation will cut down on litigation costs in labor suits.

Thailand Raises Minimum Wage

In January 2013, Thailand raised its daily national minimum wage by 40 percent—meaning an increase from about $7 a day to $10 a day in Bangkok and its six surrounding provinces.

The move was an effort to relieve the inflationary pressures on Thai workers. Inflation hovered around 3 percent throughout 2012, with the price of basic foods rising by as much as 20 percent.

Employers fought unsuccessfully against the measure, which they say will reduce competitiveness and possibly lead to even higher inflation. To reduce the burden of higher labor costs, the Thai government plans to allocate $340 million to programs aimed at improving worker productivity. The government also intends to implement a series of tax cuts for corporations.

Malaysian Employment Act and Minimum Wage

In April 2012 several amendments to Malaysia’s Employment Act went into effect. They include:

Employment Act coverage: Nonmanual workers must now make $650 a month to be covered under the act. Previously, the wage threshold was $490 a month.

Maternity leave: All female pregnant employees now receive maternity leave, regardless of their salary. In addition, pregnant employees can no longer be fired while on maternity leave.

Sexual harassment: A new process for reporting and punishing workplace sexual harassment has been introduced. Liability for sexual harassment is now extended to the individual officers of a corporate entity.

In May 2012, Malaysia’s first-ever minimum wage went into effect. The national minimum wage was set at $265-$300 a month, based on location. The new wages were slightly higher than the 2012 national average of $250 a month.

While the minimum wage was meant to counter Malaysia’s widening income gap, most employers have been unsupportive. Malaysia’s Employers Federation forecast the loss of more than 4 million jobs due to the new law. Employers argue that higher labor costs will decrease Malaysia’s competitiveness, especially in the electronics industry.

Ames Gross is president and founder of Pacific Bridge Recruiting, a Bethesda, Md.-based headhunting firm that helps companies with recruitment in the Asian market (www.pacificbridge.com). Catherine Matacic is a senior associate at Pacific Bridge Recruiting.

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