Flexible wage policy needed to resolve unemployment

Rendi A. Witular, The Jakarta Post, Jakarta

Experts urged the government on Wednesday to adopt a flexible wage policy as a short-term measure to help resolve the severe unemployment problem in the country.

University of Indonesia economist Chatib Basri said the existing minimum wage policy was so rigid that it discouraged employers from hiring more workers.

"Let the labor market in each region decide the minimum wage, the current wage policy is so rigid," Chatib told The Jakarta Post.

He added that a flexible wage policy would help entice investors to return to the country.

He was responding to a preliminary figure from the latest survey of the Central Bureau of Statistics, which reported that the number of unemployed during the first half of this year had increased by 400,000 to 8.4 million. The BPS figure was referring to open unemployment, which analysts said does not truly describe the real unemployment situation in the country. Critics said that a more appropriate measure should also include the size of disguised unemployment, which, according to one estimate, would push the total unemployment figure to more than 40 million.

Earlier this year, the government raised the minimum wage across the country by different amounts, a policy which was strongly criticized by employers. The Jakarta administration, for instance, through a gubernatorial decree raised the minimum wage for the Jakarta area to Rp 591,262 (about US$60) per month from Rp 421,000 last year.

Chatib said that setting up the rigid minimum wage policy would make it impossible for businesses to hire more workers, particularly amid the current difficult economic conditions both at home and in major trading partner countries.

But in a move, which some said was aimed at gaining labor support for the next general election, the government, through the Ministry of Labor and Transmigration, launched policies which overly protect workers at the expense of employers.

Businessmen also criticized Minister of Manpower and Transmigration Jacob Nuwa Wea for only focusing on protecting the rights of workers instead of trying to provide jobs for unemployed people.

"The government must create policies that are favorable to fostering new investments," said University of Gadjah Mada economist Sri Adiningsih.

She added that efforts to promote the development of small and medium-sized enterprises (SMEs) were also important to help resolve the unemployment problem as this sector had been relatively unscathed by the late 1990s economic crisis.

Chatib said that other short-term measures were to boost labor intensive projects funded by the state budget.

BPS applies international method in measuring unemployment

A sharp hike in the country's open unemployment figure from 5.8 million in 2000 to 8 million in 2001 is partly due to a change in the method of calculation by the Central Bureau of Statistics (BPS).

The new method is in compliance with the international standard practice outlined by the International Labor Organization, and is also being used by the International Monetary Fund (IMF) to calculate the country's unemployment rate, said a BPS official.

According to the official, under the new method used to measure the 2001 open unemployment figure, those who landed a job but have not started working are still considered unemployed. People who are not looking for work anymore are also included in measuring the open unemployment figure.

During 2000, the province of Maluku, which was hit by sectarian fighting, was excluded from the BPS survey. In the following year, however, the province was included, contributing 31,000 to last year's open unemployment figure.

Another reason for the higher 2001 open unemployment figure is the economic crisis, which started in the late 1990s.