Indonesia has enjoyed an extended period of economic growth for the past decade and a half, with GDP rising more than 800% between 1998 and 2013.
The country’s industrial sector has been the main driver behind this growth. Despite being hit hard by the Asian Financial Crisis in 1998, manufacturing still brings in more foreign direct investment than any other sub-sector of the Indonesian economy.
When you examine the extraordinarily low wages of Indonesian factory workers, you begin to understand why.
Currently, the average Indonesian factory worker is payed about $0.50/hour – that’s roughly 76 times less than the average hourly wage for U.S. factory workers.
Economists from the Economist Intelligence Unit (EIU) predict that between now and 2019, factory wages in Indonesia will increase by about 48% to $0.74/hour, while wages in the U.S. will increase by just 12% to $42.82/hour.
So despite the fact that factory wages are expected to grow four times faster in Indonesia than in the U.S., Indonesian factory workers will still be making approximately 58 times less than their American counterparts five years from now.
With labor costs in China on the rise, many companies are looking to countries like Indonesia, Vietnam and the Philippines as cheaper alternatives. These countries have large numbers of young people entering the labor force, which keeps wages down (since these youth are all competing for a limited number of manufacturing jobs):
“Manufacturing labor costs are already higher in China than in India, Indonesia and Vietnam -— countries often cited as well-placed to benefit from rising Chinese prices. This disparity will widen further in the coming years, as wage growth in these countries is kept down by strong expansion in labor supply,”
the EIU said in a recent report.
Many U.S. firms have been taking advantage of the low wages in Indonesia for some time now. Nike, for example, employs more than 100,000 factory workers in Indonesia, paying them an average of about $3.50 per day.
Still, despite the rapidly growing demand for its labor, Indonesia remains one of Asia’s poorest countries, with the average citizen taking home less than $3,500 per year.
Read the original story from Bloomberg.