Here's why Indonesian minimum wage in 2013 will jump two-fold

Jakarta is set to surge by 44%.

According to DBS, the minimum wage increases approved for 2013 thus far appear high. Specifically, Jakarta's minimum wage is set to increase by 44% from IDR 1.5mn/month to IDR2.2mn/month.

Here's more from DBS:

This is by far the largest increase over the last decade. Comparatively, the annual minimum wage increase averaged only 11.3% from 2008-2012.

Effectively, this implies that minimum wages by end-2013 will be double the level of 2009. Considering that Jakarta's minimum wage increase is likely to be used as a yardstick, other regions may be prompted to embark on aggressive hikes as well.

Depending on how strictly the regulations are enforced, this presents a significant jump in costs for employers.

A robust pace of economic expansion over the last five years has attracted investors. Workers have also become emboldened to demand higher wages and improve their living standards.

However, there is a limit to how much minimum wages can rise before excess strain is put on businesses. Intuitively, labor intensive industries will be the most heavily impacted.

A quick look at the average wage data (2011) from the Ministry of Manpower and Transmigration reveals that average wages were the lowest in the agriculture, manufacturing, construction and wholesale & retail trade sectors.

Assuming a 30% increase in average minimum wages across the country next year, the new level of minimum wages will already exceed average wages in these sectors.