Poor's Subsidy

For $250/month one can hire a driver in Indonesia. For as little as $60/month one can afford an unexperienced housemaid. They show that what slows down Indonesia's economy is the low quality of workers. It is practically impossible to expect them to improve their skills beyond their current and their ages are between 20 and 40 years old, the supposedly productive age bracket.

They received typically 6-9 years of school education which is not enough to improve their lot in real world. Most grow up in rural areas and cannot use their agricultural skills when they move to cities. I estimate about 60% of Indonesian workers have these characteristics.

These Indonesians are achingly polite, so much so that they would defer if they are presented with challenges. For instance, I was interviewing a driver, and before I said anything about driving out of town he already said that he did not have intercity driving experience. Such worker needs a lot of encouragements - which could be tiring for an employer - and suggests he does not have initiatives.

Low skill workers are also reluctant to improve their skills. What do I mean by low skills? They are those that can be mastered at acceptable proficiency within 1-2 months. Examples are household (simple) cooking, floor cleaning, and grocery buying. Driving is not a low level skill, but it is easy to get driver's license in Indonesia. It still takes 1-2 years to master driving skills though, but there are not many standard rules in Indonesia. All one has to do is an access to a car, a driver's license, and a willingness to drive in a chaotic traffic.

They are disadvantaged because of their low skills. They are, however, a boon to the Indonesia's upper middle class. The quality of living of the upper middle class is quite cushy since cooking, cleaning, driving, washing, gardening, and even house repair can be outsourced cheaply. It allows for the upper middle class to focus further on their jobs, and this is what I would call the poor's subsidy.

It is not a mistake of the upper middle class to give low salary since there are a lot of poor looking for jobs and the quality of these workers is low. What separates one from others is his loyalty and hard work.

This low economic class represents a huge untapped market. My rough estimate is that their purchasing power is about USD 15 billion per year. Unilever, Danone, and other multinational consumer product companies aggresively pursue business in Indonesia not only for their current purchasing power but for their future loyalty in 10 years.

Before their purchasing power can increase they have to improve their education and skills. This is not a realistic expectation, however. What is more likely going to happen is that their purchasing power will rise due to inflation. Demands of wage raise are getting louder. There have been labour demonstrations occuring in Batam island and Jakarta. I don't think they will subside since lives are hard for them.

This low economic class is - I think - the reason why Indonesia is not in recession. They spend all they have on lubricating the country's economy. They subsidize the rich with their low paying wages. I suspect money circulation in this economic class is fast as well since they borrow each other constantly. I know this since I have a microcredit business in Solo and watch how they struggle to make ends meet.