Ethicality of worker contracts in doubt

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.