Problems beset new minimum wage policy

Problems beset new minimum wage policy

By Teten Masduki

JAKARTA (JP): Many businessmen have called for a postponement
of the government's newly established minimum wage regulation for
industrial workers, which went into effect beginning April 1.

The businessmen, who are members of seven associations of
manufacturing companies, feel that they will not be able to
discard the daily wage system and streamline it into a monthly
payment system for workers of all categories.

Chairman of the Indonesian Chamber of Commerce and Industry
Aburizal Bakrie says the new regulation will result in higher
production costs, considering the existing burden of illegal
levies.

This is a valid argument, because illegal levies range from 20
to 30 percent, as compared to the labor wage component of 7 to 11
percent of total production costs.

So far, the manpower minister has not responded to the
proposal.

Indonesia's minimum wage level is the lowest among neighboring
countries, including Vietnam.

In terms of figures, Indonesia's new nationwide minimum wage
level is Rp 4,072 per day. Although it is 10.63 percent above
last year's figure, it still does not meet the workers' daily
minimum needs of subsistence living.

Any effort to break this deadlock should not make victims out
of workers. The crux of the problem lies in the illegal levies,
which should be wiped out by the government. But this is by no
means easy, since businessmen have long been subjected to the
bureaucracy and the military.

A late 1995 survey on workers' daily expenditures in Jakarta
and its satellite towns found that single workers spent Rp
251,000 a month to meet their needs, but still fell short of
their goals by Rp 115,000 if they depended solely on their basic
wages, based on last year's minimum wage level. Even with the new
minimum daily wage of Rp 5,200 (for Jakarta and its surrounding
towns), they still fell short by Rp 95,000, if based on last
year's expenditures.

In order to make ends meet, workers resorted to working
overtime, side jobs, credit and collective buying and loans. As a
result, the workers' cash flows in a vicious circle. They take
out loans to help meet their needs and end up taking out
additional loans to pay the original loans.

The gap between the workers' minimum wage and their real needs
is caused by the fact that their assumed needs for consumption
and public services have remained unchanged for 40 years.

The calculation of minimum physical needs has a number of
flaws. Gender bias is one example, since there are no
calculations of women's physical and social needs, even though
the light manufacturing sector is dominated by low-paid female
labor.

The new minimum wage also fails to differentiate between
single and married workers, despite the ILO Convention No. 131 of
1971, which states that wages should be sufficient for workers
and their dependents.

The 1996 minimum wage is calculated based on 1991 prices. For
example, rice is calculated at Rp 600 per kilogram. A Bank
Indonesia report dated Sept. 29, 1995 said that rice prices
throughout Indonesia were higher than Rp 700 per kilogram.

This shows that the agencies responsible for the minimum wage
level do not conduct field surveys properly. The minimum wage
calculation is completed solely by the minimum physical needs
section within the Manpower Ministry.

The increase in the minimum wage, which is based solely on the
official inflation rate, is flawed because it disregards the
reality of worker consumption patterns. For example, 70 percent
of a worker's income is spent on food.

The new standard of minimum living requirements, which is now
being introduced, appears to be no better than the previous one
because it is still dominated by physical needs (food and
clothing) to the tune of 83 percent for single workers and 87
percent for workers with families. The remainder of 13 to 17
percent includes education, health, recreation, transportation
and other needs.

The minimum wage should be determined by an institute that is
well-informed about price fluctuations in consumption and service
commodities, inflation and company profits. Labor organizations
should be consulted, as well as the central statistics agency,
financial institutions and banks.

A standard wage policy for all industrial sectors is no longer
relevant. The sectors of capital-intensive industries and light
non manufacturing (monopoly) industries have proven themselves
capable of paying wages above the minimum wage. But
because the minimum wage is treated as a maximum standard -- both
by companies and the government -- it will deny workers their
right to obtain wages above the minimum level, as a result of
various regulations and repression of their right to organize.

The writer is a member of the Wages Committee and Head of the
Labor Division of the Indonesian Legal Aid Institute Foundation,
Jakarta.