Minimum wages should be set by sector: Economist

JAKARTA (JP): Minimum wages should be set on a sectoral rather than the current regional basis, the Centre for Strategic and International Studies (CSIS) said yesterday.

CSIS economist Tubagus Feridhanusetyawan said that setting minimum wages according to industry would make workers' wages consistent with their skills.

"Demand for labor depends greatly on the technology used by each industrial sector, therefore minimum wage standards should be set by sectors," Tubagus said.

Minimum wages, which only apply to the formal sector, are set by the government. They have been raised every year since their introduction in 1992, when the average daily minimum wage was Rp 2,000. Minimum daily wages were raised yesterday. They now average Rp 5,176 (US$2.1).

Tubagus said that, by setting minimum wages according to industries, workers using sophisticated technology, in fields such as mining and construction, would earn more than those in sectors using simple technology, like shoe and garment factories.

"Employees in capital intensive sectors deserve higher minimum wage levels than those in labor intensive ones," he said.

According to the Central Bureau of Statistics, 30 million people, or 37 percent of the country's workforce, worked in the formal sector in 1995 and 50 million, or 63 percent, worked in the informal sector.

Tugabus said an estimated 25 percent of workers in the formal sector were earning less than the minimum wage.

Tubagus said that, as long as Indonesia had a labor surplus, workers could not expect significant rises in minimum wages.

More than 70 percent of workers in the informal sector have only attended elementary school and 3 percent are senior high school graduates, according to official figures.

CSIS has proposed that the government initiate an ASEAN free labor area that would allow people to work in any ASEAN state. It said this would help Indonesia while national trade barriers are falling.

ASEAN (the Association of Southeast Asian Nations) groups Indonesia, Malaysia, Brunei, Singapore, the Philippines, Thailand and Vietnam.

This initiative would complement the ASEAN Free Trade Area, which is scheduled to begin in 2003.

Tubagus said that, if Indonesia could export more workers, it could reduce its labor surplus and improve workers' bargaining power.

"Indonesian workers will earn more overseas and wage levels at home will improve significantly because the labor supply will decrease," he said.

Mari Pangestu, a senior CSIS economist, said that Indonesian workers, mostly in Malaysia, Hong Kong and the Middle East, sent home about US$500 million a year in foreign exchange.

She said it would be hard for Indonesia to set an ASEAN free labor area because affluent members such as Malaysia and Singapore would oppose it.

Mari said that debate on minimum wage levels has often encompassed other labor problems, such as poor workplace conditions and a lack of social security.

Domestic minimum wages were generally fair considering the country's economy, she said.

"What annoys employers is that the government often introduces new rules with short notice which ruins their business arrangements," she said. (pan)