Final Case Paper

Gender-based Wage Inequality in Indonesian Manufacturing Industries

(Business Ethics)

Purwaditya Yuwana

MASTER IN MANAGEMENT

FACULTY OF ECONOMICS AND BUSINESS

UNIVERSITAS GADJAH MADA

2021
 Gender-based Wage Inequality in Indonesian Manufacturing Industries

Manufacturing sector plays significant role in contributing Indonesian economy. It

yields more than 20% added value to Gross Domestic Product (BPS, 2018). Moreover, it
opens job opportunities up to 14% of labor force and still grow about 15-20% within last
three years (Ministry of Industry, 2019). The top six contributors of manufacture in term of
labor are food (26.67 %), clothes (13.69%), wood (9.93%), textile (7.46%), non-metal mining
(5.72%), and furniture (4.51%). Moreover, manufacture also occupy 80% of Indonesian non-
oil export. Most manufacturing companies in Indonesia are 80.3% non-exporting, while the
exporting companies remains 19.7%.
Meanwhile, exporting-oriented manufacturers confront with higher competitive
market overseas than others who only focus on domestic market. The issues are tariffs
reducing, special trade agreements among countries, and increasing number of countries and
companies that are opening up to international trade and market. In order to be more
competitive, companies need to perform efficiency in any business dimensions, especially on
labor and their wages (Laili & Damayanti, 2019).

Men and Women Labor in Indonesia in 2016

(CSIS Manufacturing Survey)

Men (49.74%) Women (50.26%)

Figure 1. Men and Women Labor in Indonesia in 2016 (CSIS Manufacturing Survey)

The CSIS Manufacturing Survey was conducted in several subsectors, including

garments, footwear, electronics, automotive, food and beverages, and rubber and plastics.
The survey respondents consisted of 33.57% food and beverage firms; 22.91% garment
firms; 15.74% footwear firms; 10.56% each for firms in automotive, and rubber and plastics;
and the remaining 6.57% were electronic firms. The survey respondents were dominated by
companies in labor-intensive subsectors—such as food and beverages, garments, and
footwear—which are also known as female-intensive sectors. Unsurprisingly, the results of
the CSIS manufacturing survey show that 50.26% of the total workers (production and non-
production) were women and 49.74% were men. Although female workers dominated across
these six manufacturing subsectors, they were concentrated in production in the garment,
footwear, and electronics subsectors. Men dominated production work in the automotive,
food and beverage, and rubber and plastics subsectors, as well as non-production work in all
subsectors (CSIS, 2020). Many cultures perceive tasks such as sewing and mending to be
feminine activities (Tager, 2016). Fuentes argued that women are considered tame, easily
manipulated, and willing to do tedious and repetitive assembly work so it is not surprising
that women are preferred in some occupations (Fuentes, 1983).

Gender and Discrimination Discourse

Gender is neither simply defined as men nor women. Even in a simple spectrum,
gender are masculine, feminine and neuter. Social science defines this term as the
relationship pattern between men and women based on its respective social characteristics,
including division of labor, power relations, behavior, tools, language, and perceptions
(Wirartha, 2012). As a social institution, gender is neither a standard nor universality. It is
actually more related to the social system of society. It is even much broader than just
women's issues (Hafidz, 1995). Oakley (1972) states that gender is behavioral differences
between men and women that are socially constructed, namely differences that are not natural
or not created by God, but are created by both men and women through a long social and
cultural process. Thus, gender difference is neither biological nor God's nature. Meanwhile,
the biological difference of sex is God's nature, it is permanently and universally different.
Hereafter, gender is oftenly used as the basis of discrimination judgment and practice
on labor. According to International Labor Organization (ILO), discrimination on labor is “a
distinction, exclusion or preference based on race, colour, sex, religion, political opinion, or
social origin, which has the effect of nullifying equal opportunity and treatment at work”
(ILO, 1958). One form of discrimination is wage discrimination among genders. The
existence of wage discrimination can be seen if with the same position and productivity, male
or female workers get different wages (Wirartha, 2012).
The Indonesian Manufacturing Case

High-Context Culture
China
Japan
Middle-Context Southeast Asia
(e.g. Indonesia, Malaysia,
Culture Thailand)
Russia Middle East & Africa
Low-Context Culture Spain
Canada Greece
US Italy
UK Central & Latin America
New Zealand
Scandinavia
Germany

Figure 2. Countries Placed on the Spectrum of Low/High-Context Culture (Barret, 2014).

Indonesia is a Southeast Asian nation and considered as high-context culture. Context

is how culture that is established and going around might affect the choices of individuals, the
way they interact with others and understand the words and behavior of others (Barret, 2014).
In fact, Indonesia has very stable traditional norm with more patriarchal standard and practice
either at individual, communal or national level. Men are granted by many priviledges,
power, authority and social status. This standard was incorporated into mindset, mental
model and behavior across nation and centuries. Thus, it is not such easy to eradicate
discrimination against women in Indonesia.
Gender inequality remains in various dimensions especially in socio-culture,
economy, education, and politics. Women's education level is still far behind than the men's.
The backwardness of women in economy can be seen from the poverty experienced by
women which is indicated by the low quality of life and the role of women. According to the
World Economic Forum 2016 survey, Indonesia was ranked at 88 th in Global Gender Gap
Index and 107th in Economic Participation and Opportunity Sub-index (World Economic
Forum, 2016). The ratio of women's wages compared to men's wages for the same job is only
0.68. Unfortunately, this value was lower than 10 years ago at 0.79. Women's wages are
lower than men's wages and women's productivity is lower than men's productivity.
However, the ratio of female to male productivity is still higher than the wage ratio: 73% vs.
59% (Laili & Damayanti, 2019).

Table 1. Ratio of Female-to-Male Average Wage by Subsector and Position (Hendytio & Barany, 2020).

The table above shows that women receive lower wages than men, but at the certaint
management level in some subsectors they earn higher wages than their male counterparts.
The female-to-male wage ratio in electronics and automotive for staff, junior managers, and
mid-level managers is greater than 100, representing higher wages of female workers than the
males. Otherwise, female receive lower wages in garments, footwear, and food and beverages
subsectors (Hendytio & Barany, 2020). This trend could be seen from the supply-demand
interaction. Female workers are oversupplied to garments, footwear, and food and beverages
subsectors that bring them into lower-wages structure. Meanwhile, female workers in the
electronics and automotive are still rare then they receive higher wages. Regarding to the
level of management, the sweet spot of women may be at mid-level management due to its
highest ratio compared to other levels. Whereas the wage gap at senior management level is
worse than at entry-level management.
Moreover, Indonesia as developing country tends to perform manufacturing and
productive activities as efficient as possible. This is like a consequential action to reach
higher profitability and growth in corporate and government standpoints. Unfortunately,
women was oftenly become a victim of efficiency model in the manufacturing company by
pretexting "women should be pay less since she was carried by his husband's income."
The Cause of the Case
The gender-wage gap could be elaborated into two streams: the explained gap and the
unexplained gap. The explained gap is the difference in wages between male and female
workers caused by human capital differences (i.e. education and work experience), while the
unexplained gap or also called as residual gender-wage gap is the difference in wages
between men and women that cannot be explained by human capital difference (Laili &
Damayanti, 2019).
Human capital difference define productivity level of worker. Human capital
perspective recognize the linkage between expectations of working in labor market and the
costs of pursuing relevant education and training (Polachek's, 2004). The greater the
expectation of working, the greater the investment must be spent in pursuing relevant
education. Putting into perspective, men have high expectation to work since it is his
responsibility to generate income and make his family meet the needs and wants. Meanwhile,
women and their family have lower expectation to work due to their households chores.
Therefore, women's investment in human capital is likely to be lower than men's. Whereas
lower human capital leads lower women's productivity and wages received by women (Laili
& Damayanti, 2019).
Hereinafter, men and women have different preference in term of the type of work. As
the households chores bearer, women prefer jobs which are running in shorter hours, more
flexible, more comfortable, and less risky (Anker, 1997). However, wages are paid not only
considering human capital investment and return, but also compensation of inconvenience
(Filer, 1985). If women prefer more comfortable jobs but lower wages and men prefer less
comfortable jobs with higher wages, it will result in wage gap between men and women.
This measure is called as residual gender wage gap as a form of wage discrimination.
Certain jobs offer higher wages because they have higher risk and/or lower level of comfort.
If men are willing to take these type of jobs, while the women prefer lower risk jobs with
higher comfort, then men's wages must be higher than women's wages. In this context, the
difference in wages is not caused by wage discrimination, but it is caused by differences in
taste between men and women in choosing employment (Wirartha, 2012).
Discrimination within organization also cause the gender-based wage gap. Referring
to the theory of economics of discrimination, discrimination requires high costs (Becker,
1971). Discriminatory companies become less efficient. Assuming the employers does not
like the group of female workers. To keep maximizing their utility, employers who
discriminate against women will only accept female workers if they are willing to receive
lower wages than men even at the same level of productivity. In companies that discriminate
against women, the ratio of women's wages to men will be lower than the ratio of
productivity.

Conclusion: Technology Advance and Better Wage

Table 2. Average Wage by Technology Adoption, Gender, and Position in IDR (Hendytio & Barany, 2020).

According to the table, technology adoption cause significant increases on female-to-

male wage ratios. The more advance of technology adoption, the higher opportunity for
female workers to receive higher wages. This consequence follows due to advanced
technology could help them to perform higher productivity. Therefore, companies need to
improve their technology and digitalization advance to increase productivity of their female
workers. These improvement allows women to complete some jobs that was previously
undertaken only by men (Hendytio & Barany, 2020).
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