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o issues have attracted as much attention for the last few days as outsourcing and the minimum wage. Rallies by workers for the elimination of outsourcing have crippled production.

Factories are closed as their workers are flocking in the streets. The saga continues as business owners and investors send clear messages that they will withdraw their business from the country if this issue remains unresolved. The government is stuck in the middle. It is obvious the situation will put the economy at risk.

In response, the Manpower and Transmigration Ministry issued a decree allowing outsourcing of non-core jobs only. Few days later, the Jakarta minimum wage was set at Rp 2.2 million (US$230). The decision has been made, therefore the issue is settled, no? Not so fast. Business owners are ready to request deferral for the payment of the new wage.

This back and forth situation is because basic principles are missing from the discussion.

On outsourcing, it seems that current perceptions among workers is that everything will be fine when the scheme is removed. Two points are relevant here.

First, it is impossible to eliminate the scheme due to the nature of selected project activities in business. Consider a business owner in the footwear industry with two years to build a new factory.

He needs a civil engineer and construction workers to build the factory. Recruiting those professionals to be permanent employees is meaningless.

Soon after the factory is completed, what the business owner needs is a mechanical engineer to handle factory machines, not a civil engineer. In short, the business world recognizes short-term projects and outsourcing is designed to provide workers for such projects.

Second, the status of the workers is not the problem, but their welfare is. If you are working under an outsourcing scheme and the benefits package is good (i.e. salary, insurance, leave) what should you worry about?

After you contract is completed, you might apply for another project in the same company or move to
another company. It is more important to provide, through regulation, decent benefits package for outsourcing staff and ensure companies comply with the regulation.

If outsourcing is banned, companies will think twice before embarking on new projects. Even if the project proceeds, fewer workers will be recruited. The situation is counterproductive to reducing unemployment in Indonesia.

To understand why, let’s look at the data recently issued by Central Statistics Agency on unemployment. Per August 2012, the number of unemployed in Indonesia was 7.2 million, which is slightly over 6 percent of the total labor force.

The highest unemployment rate is vocational and high school graduates, around 9.9 percent and 9.6 percent respectively.

It means the country abounds with unskilled labor and our task is to create jobs for this group. The jobs in question are covered in the recent ministry decree on activities eligible for outsourcing: cleaning, security and catering, for example.

On minimum wages, workers want an increase since the current amount is not enough to meet basic living costs. Remuneration should be enough to cover expenses for basic needs and the appropriate amount should be decided through discussion between workers and business owners.

It is worthwhile to note that the standard cost of living is affected by the inflation rate. If prices of goods increase, workers find their wages buy fewer goods than before and their standard of living is lower. Wages therefore need to be adjusted annually corresponding to the inflation rate. By doing so, we keep workers’ quality of life stable.

In view of this, government policy in macroeconomic management is crucial. Price stabilization will help workers to avoid a decline in their standard of living.

The government must provide deliverables in the social sector. Workers’ expenses will fall into three main categories: food, housing and transportation. Providing affordable housing and good public transportation at a reasonable cost will give workers more money in their pocket. Increasing the minimum wage means nothing if public services are poor and getting more expensive.

To improve business capacity to comply with the minimum wage regulation, the government should turn the business environment from high-cost to low-cost. Bureaucratic red tape, combined with kickbacks, is always a “cost center” for all companies, leading to constant reduction of their budget.

Business is all about making profit by increasing revenue or reducing costs. For too long, business owners have been paying a number of unnecessary costs — official and unofficial. If companies pay the minimum wage, the government should remove unofficial costs to businesses. That way, companies will stop looking so hard at labor cost reduction for profit.

In an environment of high unofficial business costs, companies are always trying to cut their workers’ paychecks.

In conclusion, the labor issue is more than setting minimum wage or trying to remove outsourcing. The issue should have comprehensive solutions with all stakeholders involved in the dialogue.

It should not be settled at the level of workers and business owners only. The government, with its policies and regulations, is indispensable to the solution.

The writer is a lecturer at Pelita Harapan University, Tangerang.