Erwida Maulia, Jakarta – Indonesia, along with most countries in the world, has seen the gap between the salaries of its workers widen in the past two decades, a condition that is protracted in Indonesia's case because its informal sector absorbs such a large portion of the total work force, an ILO study has revealed.
In its World of Work Report 2008, the International Labor Organization (ILO) said about two-thirds of more than 70 developed and developing countries surveyed had seen the incomes of their richer households increase relative to those of middle class and low-income households.
The report, drawn up by the ILO's International Institute for Labor Studies, also reveals the gap between salaries of top executives and the average employee in Indonesia is widening at an increased rate.
CEOs of the 15 largest companies in the United States, for example, earned 520 times more than the average workers at their respective companies in 2007, up from 360 times in 2003, it added.
"Income inequality has been increasing especially in advanced countries like the US and Nordics; but also in emerging economies such as Eastern Europe, China and Indonesia," the institute's lead economist Ekkehard Ernst said in a discussion on the report in Jakarta on Tuesday.
"In Indonesia, the incidence of informal employment remains significant and is on the rise," said Ernst, adding that a shift toward informal forms of employment was among the factors widening the inequality.
Ernst said some disparity between incomes was necessary as a way to reward work effort and talent, and to encourage innovation, but he warned that excessive inequality would lead to social unrest and economic inefficiencies.
Bambang Widianto, a deputy to the state minister for national development planning, said Indonesia's Gini coefficient (a measure of the inequality of income distribution, in which a lower index indicates better equality) had risen to 0.368 in 2008 from 0.311 in 1999.
Of the country's 49.67 million workers, about 70 percent are employed in the informal sector, and in particular by micro and small enterprises, he said.
Bambang said informal-sector workers received an average salary of Rp 603,000 (US$54) per month, one-quarter of the average amount earned by employees at medium and large enterprises.
"This shows an evident inequality of income," he said, adding that while formal workers had seen their salaries rise by 20 percent on average since 1999, the salaries of informal workers had not matched the rate of increase.
Indonesian Employers Association chairman Sofjan Wanandi said he was aware of the widening income gap between rich and poor people in the country. But the gap, he said, was not as severe as in the United States, which had a Gini coefficient of 46.3 in 2007.
Sofjan said there should be policies put in place to employ more people in the formal sector to oppose the widening of the gap.
Indonesian Labor Union Confederation vice president Thamrin Mosii said that formal jobs were not necessarily secure as many were employed on contract-based systems and were thus vulnerable to mass layoffs that have been forecast to hit the country next year due to the global financial crisis.
An economist at ILO's Jakarta office, Kee Beom Kim, forecast that between 170,000 and 650,000 Indonesian workers would be laid off next year, which would increase the country's unemployment rate, currently 8.46 percent, by 1 percent.