Toward industrial peace

The new minimum wage levels introduced this month should not have caused such a furore among employers, nor should they have set off the recent wave of labor strikes. After all, this year's average increase is only 10.63 percent, down from 18.60 percent last year, and the wage hike is applicable only to medium and large businesses. Small enterprises and cottage industries are subject to separate minimum wage rulings.

The most contentious point in the Minister of Manpower's decree No.02/1996 on the new minimum daily wage is not related to the rate of the increase itself, but rather to the definitions of permanent, monthly-paid, and daily-paid workers in the decree. The three categories of workers in the decree seem to be ambiguous, as permanent and monthly-paid workers should both have been classified as permanent employees, and daily-paid workers as temporary employees. According to normal business practice here only permanent employees get a full monthly wage. The consequence of this ambiguity is therefore that all workers, including temporary ones, are entitled to the minimum daily wage even on Sundays and public holidays. Under the previous ruling, employers paid their temporary workers only on the basis of actual days worked, which normally add up to 25 days.

At a time when the competitiveness of Indonesian exports of labor-intensive products is coming under increasing pressure from countries with even lower labor costs, these wage hikes and the compulsory payment of full monthly wages even to temporary workers might further aggravate the plight of export-oriented industries. Such a wage system may also be interpreted by daily workers and their union leaders as a promotion to the status of permanent employees. Such a misconception could have an even more devastating impact, considering the non-wage costs related to social security which permanent employees create.

Before responding to employers' objections to paying all workers full monthly wages, we feel the government should bear in mind the following factors.

Firstly, the latest wage rise, like the one last year, is not linked in any way to productivity, but was simply mandated by the manpower minister to improve the welfare of workers.

Secondly, most of our exports are labor-intensive light industrial products which, due to fierce competition in the international market, carry only very meagre margins. Any increase in labor costs will thus directly affect their sales.

Thirdly, most industries work on unpredictable and fluctuating orders. They should therefore be given the flexibility to hire temporary workers, provided they pay the minimum daily wage.

Fourthly, it is a sad fact that our unemployment and underemployment rates are very high at four million and 30 million respectively. The annual increase in jobseekers is estimated at 2.5 million. Excessively rigid employment regulations may discourage new investment in labor-intensive industries.

The wage hike, and the compulsory monthly wage, would not have affected businesses so much if the government had been able to reduce invisible costs caused by regulation, bureaucracy, and corruption. The government's efforts to improve workers' welfare seem doomed to failure if such invisible costs are not removed from the equation.

The government can decree wage hikes every year, but this may be counter-productive, edging many companies out of the market and consequently throwing more workers onto the street, and back into the unemployment ranks.

It is imperative that the government, business and trade union leaders sit down to work out a compromise on the enforcement of the minimum wage, to prevent further strikes. Industrial disputes are dangerous because striking workers can easily turn into rampaging mobs. They also make the business community restless and scare away new investors.