The 7 percent deal

Jakarta Governor Sutiyoso has officially approved the 7 percent increase in the provincial minimum wage which will take effect next year.

Probably no one can say exactly whether the decision is good or bad news for both employers and workers. The increase is in fact 18 percent lower than what the labor unions had demanded. The figure is also lower than the inflation rate which is estimated to reach almost 10 percent this year.

With the increase, a worker will receive a monthly wage of Rp 631,000 beginning January 2003. Employers who cannot afford to pay higher wages can submit their objections to the governor. They may be shown some leniency and be allowed to delay the implementation of the new ruling.

Indeed, it is hard to imagine how one can survive for a month on such a small amount of money in this capital city. The increase is not in keeping with the rise in prices of basic commodities, but this is a fact of life that the workers have to accept.

It is definitely risky in such a situation for employers or companies to give more than a 7 percent increase, but to give no increase at all could be considered as a sign of disregard and could trigger violence. Under such circumstances, to give a 7 percent increase is the best thing they could do.

This decision was made after a prolonged debate. The Indonesian Employers Association (Apindo) had previously rejected any wage increase for 2003, arguing that business had been sluggish in the capital city. They also blamed the big floods that devastated many parts of the city between January and February this year as an important factor which had affected their businesses. They claimed to have suffered a total loss of Rp 5 trillion due to the floods. They also fear the repercussions of the Bali bomb attacks will affect their businesses in the near future. Last but not least, the high-cost economy is still an unresolved problem that burdens businessmen in Indonesia.

We all agree that business has been slack for years as there have been few new investments and capital flight continues. However, no one can deny that hardship has sharply increased for workers.

It is of course understandable that workers demand a higher wage increase. Nevertheless it would also be wise to consider the chaotic state of the national economy. Therefore, all parties concerned in the debate in truth have no other option but to accept the 7 percent increase and to start thinking in a more realistic way.

There are things the workers should take into consideration if they reject the decision -- for example protests and outbreaks of violence that may end up in dismissal.

Last year, records showed that this capital city of more than eight million people had a labor force of more than four million. Fifteen percent of the total potential labor force, or more than 600,000 people, were jobless. This is an alarming figure.

Had the workers' unions been persistent in their demand for a 25 percent increase in the minimum wage, and had the workers rejected the 7 percent hike, things could have been worse. The number of unemployed might rise and this could lead to an increased number of poor people in the city. The latest data indicates that some 860,000 people in the city are classified as poor. Social unrest, therefore, is on the doorstep as hungry people are angry people.

Another classic question that has yet to be answered is the relationship between wage hikes and productivity. There has been no definite answer to the question of whether a wage increase would boost productivity, or whether productivity must come first.

This enigma is not unlike the question of which comes first, the chicken or the egg?

We all acknowledge that the national economy is now in a sorry state. Therefore it is better for both, employers and employees, to join hands and realize that they cannot be separated as, in fact, they share a mutual interest.

The employers for their part must be honest and fair and not pretend to be unable to pay their workers more and submit a letter of objection to the governor. They should also realize that on the one hand workers have a right to live decently as citizens while on the other they must also be aware of their obligation to give their best.

This mutual respect between worker and employer must be maintained and promoted, especially in these difficult times to prevent labor-related problems from developing and growing into exhausting conflicts.