Ethicality of worker contracts in doubt

Santo Koesoebjono, Economist, Demographer, Wasenaar, The Netherlands

A worker at a candy factory in Cibinong on the outskirts of Jakarta, Uti, said sadly one day that it was the last day of her six-month contract. It is a common practice among many large companies to give short-term contracts.

The company's policy was a reaction to a government regulation that stipulates that a worker must be hired as a permanent employee after working in a company for two years. The regulation also entitles a worker to severance pay and service payment when he or she is laid off after a longer period of employment.

Any well intended government regulation would have negative side effects if not properly implemented, and workers become the victims. Worse, the bank where the above company opened personal accounts for all employees closed the accounts upon expiration of the workers' contracts and the workers whose contracts are not renewed lose their surplus balance.

By not extending the employment period, after each six-month period new recruitment and on-the-job training has to be carried out. Most factory employees are low-skilled workers, with a junior or senior high school diploma. Uti, with a diploma from a state economics high school (SMEA), like many others also got a job on the assembly line. Although the job is simple, training and supervision are needed during the first weeks.

Uti, along with another 13 workers on the assembly line, places candies in a sachet. At the end of the conveyor belt a supervisor checks the sachet. To avoid disruptions to the system only one person is allowed to take a break at a time. This process is carried out the whole day. The factory must have a particular method to select the best among these 14 persons to extend the work contract!

Besides avoiding providing permanent employment for a worker, this six-month contract allows the company to assess its prospects. If prospects are good more people will be employed and if prospects are not so good there will be fewer recruits. In modern economic jargon this is called a flexible labor market.

It is debatable whether such a policy is appropriate considering the repeated process of recruitment and introduction of new workers. It shows the short term orientation of the company. Besides, it proves that man has little value. These workers are disposable. A company is indeed not a social institution, but we are now no longer in the primitive industrial society of the 19th century and early 20th century Western Europe and America.

It also demonstrates the weakness of labor unions. Workers remain the underclass of society who may trigger social unrest as happened in Argentina recently. These workers remain topics for seminars at chic hotels.

One wonders whether those officials who outlined the above government regulation have looked seriously into its effects.

One may also wonder whether this short term employment cycle has any effect on the common economic indicator -- the unemployment rate, if those employed are replacing those laid off. It is even questionable whether such a system has any impact on the reduction of the number of people living under the poverty line.

In northwestern Europe in the 1950s and 1960s foreign workers were officially recruited for a specific contract period to make up for the labor shortage in the region. In the course of time employers insisted upon extending contracts because these unskilled foreign workers had become indispensable, even though they were "only" working on the assembly line. They guaranteed a continuation of the production process in the long term in the eyes of the employers.

Another surprising practice is that the factory opened a personal account for its workers including Uti and her colleagues at a bank where their salaries are transferred every month. When their contracts expire and these workers are laid off by the company the bank closes the personal bank account after a few weeks. The money remaining in this personal account can no longer be withdrawn and goes to the factory. The money is gone. Fortunately, Uti had withdrawn her money before the bank closed her account.

Are the popularity of short term contracts and the closing of the personal bank account of laid off workers symptoms of a breaking down of the economic and financial system and declining administrative ability of the government? Is it the excesses of an egocentric attitude of "the haves"?

If so, people like Uti are doomed to live in uncertainty and poverty without any future prospects other than a desperate assault on those whom they perceive as the extortioners.

The company policy ensures that these workers are not in a position to improve their fate and remain in a situation of uncertainty. This creates feelings of despair, frustration and discontent motivating them to join protests.

Moreover the desperate situation of these workers also creates jealousy toward those with an excessive lifestyle. They see these people arriving every day at the factory in fine clothes and luxury cars.

Measures need to be taken by the government to guarantee a minimum amount of financial support to workers employed for six months and longer. This support should be provided partly by a social fund, the capital of which is formed from social security premiums paid by the workers during their employment and by the employer.

Financial support from the government should also be made available as part of its social and economic policy. Also, the employer should be required by law to give severance payment equivalent to one month's salary when terminating a contract after six months. This would encourage employers to employ workers for a longer period. This could provide the opportunity for workers to develop a career in the company through on-the-job training which would result in more experienced workers.

In the long term such an approach will create a loyal attitude toward the company, which was once the norm within many Japanese companies.