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.