Editorial: Beyond labor costs

The agreement concluded Friday afternooon for the more than 15 percent increase in the 2012 regional minimum wages in Bekasi regency, West Java, could be a bad precedent for future negotiations under the tripartite National Wage Council because the deal was effectively made under the gun.

Employers’ representatives at the council (trade unions and the government were the other two parties) bowed to the demand for the wage increase only after tens of thousands of local workers went on strike and blocked the Jakarta-Cikampek toll road for about eight hours on Friday, thereby paralyzing economic activities in the area and closing down about 3,000 factories on several industrial estates in Bekasi.

The striking workers in Bekasi did not resort to violence as thousands of workers had done on Batam Island near Singapore in late November last year, when they took to the streets and vandalized property and police posts to strengthen their demand for much higher regional minimum wages.

The similarity though was that both the blockade of the Jakarta-Cikampek toll road and the violence on Batam seemed to have been “more effective” in helping workers win their demand, but at the expense of the credibility of the tripartite National Wage Council as the mechanism to settle such disputes and maintain industrial peace through constructive deliberations.

The basic principle shared by the three parties represented at the council is that economic growth and job creation are common goals and they can be achieved only if there is industrial peace, and if the gains from growth are fairly distributed.

Employers want profits, trade unions want a better life for their members and the government wants a conducive climate to encourage investment. These are not mutually exclusive goals, but are interdependent. Employers can remain profitable only if they take good care of their workers. Workers cannot expect to earn higher wages and better bonuses if there are no jobs or if their companies are not doing well, particularly in a globalized economy.

The government cannot foster growth in the economy if employers and unions are constantly at loggerheads with each other.

We fully support the workers’ demand for higher minimum wages, which at present are still among the lowest in the ASEAN region and far from sufficient for sustaining a decent livelihood.

But we also understand the big disadvantages encountered by our manufacturing companies as their logistics costs are more than twice as high as those borne by their counterparts in the region, due to our utterly inadequate basic infrastructure, notably in transportation and seaport handling.

Our industrial companies also have to pay much higher bank-lending rates and deal with a more cumbersome and costlier licensing bureaucracy.

These big cost-disadvantages often compel labor-intensive manufacturers, notably those that primarily rely on imported basic materials, to save on labor costs in a bid to remain competitive in the international market.

Hence, as long as the government does not make significant improvements in the sector of basic infrastructure so as to reduce our logistics costs, and corruption (illegal fees) on the roads and the licensing bureaucracy remains as pervasive as it is now, the manufacturing sector will remain vulnerable to labor strikes, as industrial firms will not be able to substantially raise wages for their employees.