Wage earners in RI fare better than in other nations<\/p>\n
JAKARTA (JP): The World Bank says real manufacturing wages in
\nIndonesia grew by 5.5 percent a year between 1970 and 1991,
\nsurpassing the wage growth in most other countries, except South
\nKorea.<\/p>\n
The Washington-based development bank observes in its 1996
\nreport on Indonesia that the wages of agricultural workers in the
\ncountry rose at an annual average of 3.7 percent, higher than in
\nother countries, except Egypt, South Korea and Malaysia.<\/p>\n
\"Rapid and sustained economic growth since 1970 has led to big
\ngains in wages and incomes for Indonesian workers,\" says the
\nannual report, which was issued here last week.<\/p>\n
The report, however, warns that caution must be exercised in
\nfurther raising the minimum wages for fear of eroding
\ncompetitiveness, lowering employment growth and paradoxically, of
\nincreasing poverty and labor unrest.<\/p>\n
The 121-page report, which is supplemented with a statistical
\nannex containing basic data on Indonesia's economy, devotes a
\nspecial chapter to discussing and analyzing the labor market
\ndevelopments based on the 1994 Labor Survey. The survey estimated
\nthe total workforce (employees and job seekers) at about 85.7
\nmillion people.<\/p>\n
The following is more excerpts from the report:<\/p>\n
The annual growth of real manufacturing wages in 1970-1991
\neven surpassed the 4.2 percent growth of Indonesia's real per
\ncapita gross domestic product.<\/p>\n
The average real earnings-- the product of wages and hours
\nworked-- of laborers grew even faster than wages as workers have
\nmoved to better paid jobs and have found steady employment for
\nlonger hours.<\/p>\n
Income growth in labor-intensive manufacturing has been
\nparticularly rapid for female workers, rising from Rp 50,933
\nmonthly in 1989 to Rp 113,497 in 1994.<\/p>\n
Prior to the mid-1980s, when the government largely left wage
\ndetermination to the labor market, wages for urban industrial
\nworkers were typically not much higher than for agricultural
\nlaborers with similar qualifications.<\/p>\n
However, in 1989 the government introduced new legislation on
\nminimum wages set by region and, sometimes, by sector, and in
\n1990 it ruled that the minimum wages should be adjusted once a
\nyear in line with the consumer price index changes (inflation).<\/p>\n
As a result, minimum wages on average tripled in nominal terms
\nand doubled in real terms between 1989 and 1995.<\/p>\n
Encouraging was that productivity growth has been rapid enough
\nto keep pace with the large increases in minimum wages, at least
\nuntil 1993.<\/p>\n
Thus until 1993, overall manufacturing productivity kept pace
\nwith minimum wages and the recent increases in minimum wages had
\nlittle adverse impact on employment growth.<\/p>\n
It also appears that minimum wages are increasingly binding
\nfor female and male workers. In 1994, the minimum wage as a
\nproportion of average wages was a staggering 83 percent for women
\nand 53 percent for men.<\/p>\n
Employment falls<\/p>\n
But the recent sharp increases in minimum wages during the
\n1990s are estimated to have raised labor costs and reduced waged
\nemployment and investment. Part of the slowdown in manufacturing
\nemployment growth during the early 1990s from the late 1980s can
\nbe attributed to the minimum wage policies.<\/p>\n
While workers in large private firms and public sector
\ncompanies are more likely to enjoy a significant gain in their
\nearnings as a result of the stronger enforcement of the minimum
\nwage policy, it is likely to occur at the expense of other
\nworkers, particularly women and young workers, who will
\nexperience a decline in their employment opportunities in the
\nformal sector.<\/p>\n
Hence, the minimum wage is not an appropriate instrument for
\npoverty alleviation. It only covers wage employees, and of those,
\nonly formal sector workers, while the poor are, by and large, not
\nwage earners but the self-employed and rural people.<\/p>\n
Since most of the poor are self-employed, the direct role of
\nlabor markets in the welfare of the poor continues to be small.
\nHowever, the indirect effects are important and growing because
\nover time the shift of population out of self-employment in rural
\nareas and into urban wage employment has played an important role
\nin poverty alleviation.<\/p>\n
Therefore, labor market policies such as the minimum wage
\npolicy which slow down the rate of wage employment creation in
\nthe highly productive formal sector is likely to have an adverse
\nimpact on poverty alleviation.<\/p>\n
Last April the government effectively raised the minimum wages
\nby 30 percent. But future minimum wage increases need to take
\ninto account local market conditions and to be based increasingly
\non local indicators such as the local rates of growth of wages
\nand employment, rather than poverty-based measures.<\/p>\n
Given that the costs of the minimum wage policy are clearly
\nvisible but the benefits are not, reliance on minimum wages as a
\ntool to improve workers' welfare and to reduce poverty should be
\nreduced.<\/p>\n
The focus of government policy needs to be employment creation
\nwith the determination of wages left largely to market forces. In
\naddition, the government needs to intervene into certain areas to
\nimprove social outcomes such as with issues of child labor and
\nwomen in the workforce.(vin)<\/p>",
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