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Indonesia not ready for productivity-based wage: Airlangga

Labor’s voice: Workers demonstrate in front of the Yogyakarta Legislative Council on Jl

Adrian Wail Akhlas, Esther Samboh and Nezar Patria (The Jakarta Post)
Jakarta
Thu, February 27, 2020

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Indonesia not ready for productivity-based wage: Airlangga

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abor’s voice: Workers demonstrate in front of the Yogyakarta Legislative Council on Jl. Malioboro, Yogyakarta, on Wednesday. The protesters called for the rejection of the omnibus bill on job creation, which they said would negatively affect their welfare.(Antara/Hendra Nurdiyansyah)

Indonesia will not “yet” implement a productivity-based minimum wage despite a recent study suggesting that the country’s manufacturing productivity is lower than that of its Southeast Asian peers.

Coordinating Economic Minister Airlangga Hartarto said the country would need to create jobs for 7 million unemployed Indonesians and that investment in labor-intensive industries would be able to provide them.

“We are still implementing the provincial and regional minimum wage, the increase of which is […] not based on productivity,” said Airlangga during an interview with The Jakarta Post on Monday. “We have yet to implement a productivity-based minimum wage due to public backlash.”

“Productivity is high in the country’s capital-intensive industries because of automation, but we need to create jobs in labor-intensive industries, which have low productivity,” the Golkar Party politician said.

President Joko “Jokowi” Widodo’s administration submitted the highly anticipated omnibus bill on job creation to the House of Representatives for deliberation in a bid to attract more investment and reform labor regulations to help jolt the country’s sluggish economic growth.

The bill faces objections from several labor unions. They maintain that the bill may undermine labor rights.

The proposed legislation caps or even scraps several payments for laid-off workers and plans to form a new social security scheme to compensate them. If the bill is passed, minimum wages will be calculated based on each region’s economic growth rate and labor-intensive industries will be allowed to have to have their own minimum wage determined by the governor of the province in which they operate.

The bill also relaxes regulations for foreign workers and seeks to simplify licensing processes to attract more investment.

Labor productivity is one the main complaints of businesses operating in Indonesia.

In a survey conducted by the Japan External Trade Organization (JETRO), Indonesia’s manufacturing productivity scored 74.4 on a scale that set Japanese productivity at 100. The country’s score is lower than that of the Philippines, Singapore, Thailand, Vietnam and Malaysia, at 86.3, 82.7, 80.1, 80 and 76.2 respectively.

The JETRO survey said that Indonesia’s dependence on commodities hampered its manufacturing sector and was one of the main reasons that industry in the country lagged behind regional peers.

Malaysia has instated a productivity-linked minimum wage.

The minimum wage in Malaysia was examined and decided upon by the National Wage Consultation Council, which has an equal representation of employers and workers. It was based on empirical data such as poverty line income, the consumer price index and labor productivity growth, said Malaysia National Wages Consultation Council secretary T. Shanmugam in 2018, as quoted by the International Labor Organization (ILO).

Nora Azmani Mahasah, the harmony division principal assistant at the Malaysian Human Resources Industrial Relations Department, explained that the productivity-linked wage system was voluntary and had been in place in the country since 1996.

“In this system, the increase in wages is in line with the increase in productivity. The system benefits both workers and employers as it increases the work performance of both of them,” she said as quoted by ILO.

More than half of the Japanese companies surveyed by JETRO said they were not satisfied with Indonesian wages. “Indonesia’s productivity is very low, while the wage increase ratio is very high,” said JETRO’s Jakarta senior director Wataru Ueno.

To improve the country’s productivity, the government has rolled out a “super tax deduction” to incentivize companies to provide training for their employees, according to Airlangga.

The government will also allocate more state funding for human resources development and prepare a preemployment card program to provide training incentives for workers.

Indonesia needs at least 113 million skilled workers by 2030 to achieve economic growth in priority sectors, such as manufacturing, infrastructure and agribusiness, according to the Research and Technology Ministry. This is almost double the current number of skilled workers.

University of Indonesia labor law expert Aloysius Uwiyono told the Post that the tax incentives could potentially enhance worker productivity. “Skilling programs, sufficient pay and a disciplined work ethic will help boost productivity.”

Aloysius, however, questioned the government’s plan to change minimum wage regulations. “The minimum wage is a social safety net. How could it boost worker productivity?” Aloysius said.

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