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Jakarta Post

Quo vadis the minimum wage?

  • Said Iqbal

    The Jakarta Post

Jakarta   /   Sat, May 4, 2013   /  02:05 pm

Every time workers all over Indonesia mark International Workers'€™ Day, known as May Day, the issue of the minimum wage comes to the fore, this year was no different.

The minimum wage is the lowest monthly pay for a single worker with a working period of one year or less, the amount is determined by regional heads in accordance with the basic cost of living (KHL). Indicators of the KHL are determined by the government. Ideally, the minimum wage should at least equal KHL but according to the National Wage Council ( 2011 ) average minimum wages in the country cover less than 89 percent of basic living costs.

Although not obligatory, the Labor Law suggests that the government set the minimum wage by taking economic growth into account.

Indonesia'€™s economic growth is currently the second-highest in the world with its Gross Domestic Product (GDP) ranking 16th. Compared to its Southeast Asian neighbors, Indonesian GDP is five times that of Singapore, four times Malaysia'€™s and triple Thailand'€™s.

With rapid growth, Indonesia should no longer face problems in realizing a minimum wage. Moreover, growth is supported by the productivity of workers.

The McKinsey Global Institute (MGI) in its report released in September 2012 found that labor productivity contributed 61 percent to Indonesia'€™s economic growth in 1990'€“2010.

However, this high economic growth did not translate into better pay for workers. The minimum wage of an average worker stood at only Rp 1.1 million (US$113) per month in 2012, while in Thailand, Malaysia and Singapore the rate exceeds Indonesia'€™s many times

The low minimum wage is in fact a result of the government'€™s low-wage policy. Workers have been subjected to various demands for productivity in exchange for very low pay. Only this year did the government begin to approve significant increases in minimum wages in several industrial regions but only after major protests. The association of employers opposed the wage increases.

The cheap-labor strategy can be identified in three issues.

First, it emerged with the phrase '€œin stages'€ for the fulfillment of the KHL in determining minimum wages. This phrase in the Labor Law has always been attached to all technical regulations.

The stipulation gave the government and employers an excuse to not pay workers in accordance with the KHL. Actually the stages have already lasted for 10 years from the inception of the law.

Second, the government emphasizes the capacity level of the business world. However, the President himself has stated that basically employers have the capacity to raise minimum wages as long as the
economy improves.

Sadly, wage increases have always been preceded by labor unrest. After workers blocked the Cikampek toll road in January, the 2012 minimum wage in Greater Jakarta, went up by between Rp 375,000 and Rp 500,000; and the national strike of Oct. 3, 2012, achieved an increase in the 2013 minimum wage of around 30-80 percent. Previously the minimum wage had increased by an average of Rp 150,000 annually.

Third, the minimum wage is fixed according to the KHL. Through the Manpower and Transmigration Ministry No. 13/2012, the KHL indicators formulated by the government failed to accommodate a number of basic needs.

In the components covering food and drink, clothing, housing, education, health, transportation, recreation and savings, the government only selected 60 out of 122 indicators proposed.

Among the items the government refused to accommodate was drinking water, despite its fundamental importance for human survival.

The ministerial regulation indeed opts for clean water by the standards of the tap water company (PAM), but in reality the quality of tap water in many places is considered poor and is not recommended for bathing in or washing food, let alone for consumption.

In addition, the tap water in the KHL'€™s housing component is not the same as drinking water or mineral water needed by workers in the KHL'€™s food and drink component.

The government'€™s list does not even include umbrellas or raincoats, although employers always demand their workers look neat while working.

When the average minimum wage is matched against the capacity of workers to meet basic needs such as food consumption, we have reason for concern. A Central Statistics Agency survey in 2011 put the average monthly per capita expenditure in Indonesia at 49.45 percent for food and 50.55 percent for non-food needs.

It means the purchasing power of a single worker in 2013 in Jakarta for a meal is only around Rp 10,000. A worker with a family of three can only afford to allocate Rp 3,500 per meal for his wife and child. This amount will decline if the worker has more than one child. Married workers earning the minimum wage are prevalent and are often found among those under outsourcing or contract arrangements.

A study by the All-Indonesia Workers'€™ Organization (SPSI) in 2009 revealed that in order to overcome their living burden, workers cut back on sleep time to moonlight as vendors or motorcycle taxi
drivers, among other jobs.

This certainly has a negative effect on the physical and mental condition of workers, because the next day they have to endure a host of corporate demands ranging from high productivity to high achievement goals.

It is, therefore, unfair for the government and employers to be talking about workers'€™ low productivity while the cause of their less than optimal work output has never been dealt with.

The government should start with the paradigm that while workers are capable of contributing greatly to Indonesia'€™s economic growth despite their poverty, with appropriate wages they would contribute even more. The Indonesian economy would also thrive further and its productivity would become more competitive.

The time has come for the government to change the low-wage policy into an appropriate-wage policy. This policy is truly protective, fair and be beneficial to the welfare of workers.

Workers employed for less than one year should be paid a minimum wage equal to KHL real values (84 items), while those already serving for more than a year should have their productivity, working efficiency, working periods and skills evaluated as the basis for their wage increase.

Rules on the structure and scale of wages should thus be more specified. The implication being that high productivity and efficiency of work are required.

If appropriate wages are realized, it is likely that Indonesia'€™s economic growth target for 2014 as declared by the government of 6.8-7.2 percent can be achieved. Workers would surely be enthusiastic to make it happen, with no more blocking of toll roads.

We all of course wish to see an ever-growing Indonesian economy, but at the same time the common objective of our nation and state of securing the public welfare must never be forgotten.

The writer is president of the Confederation of Indonesian Labor Unions and president of the Federation of Indonesian Metal Labor Unions.

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