Jakarta, Indonesia - As the marchers approached there was a buzz in the air at the Pulo Gadung industrial estate in the capital Jakarta. Young men danced around an open-top campaign van chanting the lyrics to pop songs blasting from the PA, whooping occasionally at young women passing on motorbikes.

Some had walked three hours from the neighbouring city of Bekasi. The union members gathered as a warm up for the general strike on Thursday and Friday, when an estimated two million workers will walk out of factories nationwide.

There was optimism among the crowd that their central demand - a 50 percent increase in the minimum wage - would be met.

"Workers are no longer isolated anymore. We are united and we are standing up for our rights," says, Marhasan, a 32-year-old fridge assembly worker, who like many Indonesians goes by one name.

The union movement has achieved significant momentum in recent years, securing a 40 percent rise in the minimum wage effective since January. The minimum wage varies by province and is set relative to the standard of living. In Jakarta the minimum wage is now Rp 2.2m a month ($202.40) but in West Java it is only Rp 1.25m.

Despite being on the higher rate, Marhasan says rising prices, including a 30 percent hike on fuel in June, means he still cannot afford to send his two young children to school.

"We've not been able to pay for the last couple of months. We've had a verbal warning from the school and I don't know how much longer we will get away with it," he said.

Rising prices

Marhasan's home lies a short walk from the demonstration across littered scrubland. He sleeps on a dirty, sheet-less mattress in a barely furnished two-room bungalow. Despite the advances Indonesia has made in poverty-alleviation, for the vast majority life remains tough.

"Our wages might have gone up, but I don't feel like our quality of life has really changed," he said.

Marhasan is confident that outspoken union boss Said Iqbal - celebrated by workers as a hard-negotiating "man of the people" - will secure their wage increase, along with lifetime healthcare and a ban on outsourced labour.

"Why do we want to increase the minimum wage 50 percent? Indonesia has the second highest level of economic growth after China. It's one of the most important G20 countries. But the government and employer's association still have low-wage policies" says Iqbal. "Indonesia has three times the GDP of Thailand, but our minimum wage is lower."

Iqbal says Indonesian workers deserve to benefit from the economic growth that they help to create. "If you work for 15 to 30 years and you're still poor then this is unjust, this is not equal. We need justice and equality," he says.

Competition fears

But Indonesian bosses see the demands of union leaders like Iqbal as unrealistic and counterproductive. They say that the ability of the unions to demand and receive large annual pay increases is deterring investors and slowing growth. There are concerns that Indonesia will lose out to its regional manufacturing rivals.

How do you know next year there won't just be another increase? Why not just move to Cambodia where they pay only 40 dollars a month? Sofyan Wanandi, Chairman Indonesian Employer's Association

"How do you know next year there won't just be another increase? Why not just move to Cambodia where they pay only 40 dollars a month? Or Myanmar?" Sofyan Wanandi, Chairman of the Indonesian Employer's Association, says.

According to Sofyan, labour-intensive industries, like clothing and shoe production, and smaller and medium sized enterprises (SMEs) are threatened by rising labour costs.

He admits that large capital-intensive manufacturers can afford to pay more, but that the minimum wage legislation does not differentiate between big and small companies, or those involved in labour- or capital-intensive industries.

Sofyan claims that the worker's demands are counter-productive: if employers cannot afford to pay the wages, then businesses will close and jobs will be lost.

"If you can't compete then you have to close," he said "It's not in [the worker's] interests, because you then won't be working for anybody."

He says that 200,000 people have been laid off in the last six months because of the 40 percent minimum-wage increase awarded last year and that a further 50 percent would only make matters worse.

Political fallout

Nonetheless, with Indonesia's general election scheduled in 2014, it is likely the government will be receptive to the unions' demands.

"In an election year it's extremely difficult for anyone, politicians or bureaucrats, to be seen as not 'on the side of the people'." Douglas Ramage, managing director of economic analysts Bower Group Asia, said. "The likely outcome is probably going to be an increase in the minimum wage in the greater Jakarta area of at least 20 percent."

Ramage says that large annual increases in the minimum wage could be damaging to Indonesian industry, but says that international relocation and mass layoffs are not yet a problem.

"We're not seeing any exodus… I've seen some real hyperbole along those lines and I don't see evidence of it," he said.

Instead Ramage says manufacturers are accelerating the automation of their production lines; a process usually observed at a later stage in a countries' development. Ramage fears Indonesia may be getting ahead of its own development curve, at a time when it needs to absorb more labour into its economy.

Ramage says that focusing on increasing the minimum wage may distract from the Indonesian employment's greater issue: that 60 percent of the workforce are employed in an informal capacity - as cooks, cleaners, labourers - and will not benefit from the base wage increases.

He says the real challenge for the government is to move a greater proportion of those workers - some of whom earn less than Rp 1,000,000 ($89.25) a month - into formal employment, where they may benefit from health insurance and a minimum wage.

Mr Ramage argues that excessive increases in the base wage are likely to work against this goal as businesses seek to reduce staff numbers, rather than expand.

"[Indonesian] President Yudhoyono gave a very interesting and articulate interview on a radio station where he said the large wage increases should signal to the world that the days of seeing Indonesia as a source of cheap slave labour are over," he said.

"And I think the aspirations are fantastic, but the reality is Indonesia's not there yet."