Wages: In search of a win-win solution

Yanto Soegiarto

The process of deciding minimum wage levels must be reformed as it contains weaknesses from the institutional, infrastructure and human resorces point of view. This condition has resulted in mass workers protests. Many fear these protests will spread nationwide and have an adverse impact on the economy.

The Indonesian labor unions are elated. They have forced a number of wage rises in industrial centers from Batam to Bekasi. In their latest statements, they acknowledge the need to seek a win-win solution between unions and employers but the low cost of Indonesian labor is no longer the single strongest attraction of Indonesia’s investment climate. 

Leader of the KSPI labor union M. Iqbal states that as an investment-grade country, Indonesia should raise minimum wages to promote the welfare of workers. “Indonesia should work out the ideal minimum wages agreed by workers as well as the employers to reach a win-win solution,” Iqbal said.

The joint secretariat of the Confederation of Labor Unions echoed the statement, demanding that Regional Wages Councils (DPD) propose to governors, regents and mayors higher minimum wages in accordance with the changing times and the improvement of the national economy.

“The council lacks professionalism because its members who are representatives of the employers don’t seem to understand conditions because they are normally just staffers at the personnel departments of companies,” said secretariat member Mathias Tambing.

DPDs, the country’s wage formulation bodies, have been established in 167 regencies and cities out of the total 540 councils planned. But the DPDs don’t have a uniform policy on formulating wages. At times, the DPDs often copy the policy of other regions which may not always be suitable. The unions have called on the Manpower Ministry to reform the existing policies.

Touching on the recent workers protests that brought factories to a standstill and closure of toll roads, the unions refuse to be blamed or named as a scapegoat for hampering investment and slowing the economy. Workers were only demanding minimum wages conforming to the decent living wage index or KHL (kebutuhan hidup layak). They also said that wages needed to rise to keep pace with higher food prices, which increased 16% in 2010.

The labor unions do not believe the government understands that the basic structure of minimum wage levels has to be in accordance with international regulations issued by the International Labor Organization (ILO). These state that minimum wages should be paid only by small companies while larger companies in general should be capable of paying more than the minimum wage.

“We don’t want to be blamed for anarchy. That is not the case. We are only demanding higher wages to meet the KLH. If the government calls us repressive, that reflects the incapacity of the government to protect workers and instead it is obstructing freedom of expression,” said Syukur Sarto, a union leader.

Syukur ensures that worker protests such as the ones in Bekasi and Tangerang will not recur since the Indonesian Employers Association (Apindo) has revoked its legal suit in the Bandung court to reinstate a West Java Governor’s Decree that provides minimum wages of Rp1,490,000 a month for category 1 workers, Rp1,715,000 a month for category II workers and Rp1,849,000 a month for category III workers.

Apindo also agreed to drop a planned suit with the Banten Court to revoke its Governor’s Decree that requires a minimum wage of Rp1,529,000 a month for Tangerang workers, agreed on in a tripartite process between government, business and workers.

Apindo warns of investment flight

Apindo fears, however, that the recent spate of workers’ protests will scare off foreign companies in Indonesia. It said it is doing its best to convince foreign companies that they should not relocate to other countries.

Chairman of Apindo Sofjan Wanandi states that huge multinationals such as Epson, Samsung and Unilever have been negatively influenced by the protests. The association called on the governemt to restore public order and enforcement of the law to sustain the livelihood of companies.

“Minimum wages are lower in Myanmar and Cambodia. Why should minimum wages be higher here? I am siding with the smaller companies, the big ones I shouldn’t defend,” he states.

Sofyan also says that in the recent worker protests, thugs caused substantial damage to a number of factories. Workers dismiss such claims and insist that they were only seeking an end to injustice.

Coordinating Minister for the Economy Hatta Rajasa has called on governors and regents to engage in tripartite talks to reach agreements in formulating minimum wages.  Speaking before 500 national businessmen at the recent 60th anniversary of Apindo, Hatta said that a just system of minimum wages must be created and that employers should regard the recent spate of protests as a lesson.

“Industries won’t develop if workers don’t get proper minimum wages. We need to look for a balance and this needs to be worked out soon. At the same time I am urging the worker unions to refrain from protests. We should enforce the law and should never allow any political interest in the system and governance of minimum wages,” Hatta said.

Businessman Chairul Tanjung said that in adjusting wages to meet the decent living index (KLH), companies should not only blame workers or accuse them of being the the main problem. The companies should conduct efficency drives instead of blaming the workers. Both Hatta and Tanjung echoed this stance during a recent national media conventiaon in Jambi, Sumatra.

In Jakarta mid-February, workers demonstrated at the Jakarta Governor’s office to protest Jakarta Governor’s Decree no 13, 2012 on increased provincial minimum wages. Demonstrators grouped in the Jakarta Forum of Workers called on Governor Fauzi Bowo to revoke the decree, which formulated minimum wages that are lower than the new minimum wages agreed for Bekasi workers.

“We want at least the same amount as the Bekasi workers. We know that production growth of sectoral industries was 30%.  Workers have the capability to contribute to that growth and we deserve our rights. If we don’t get that we call on the governor to resign or we will stage a huge protest at City Hall if he’s not pro-worker,” protest organizer Baris told BeritaSatu.

Statistics Bureau: Wages too low

The Central Statistics Bureau (BPS) in a recent release said wages are still low compared to overall production costs. Wages constitute only 20% of total production costs while the profit margin of business is very much higher. “From the research point of view, 20% is too low (for wages),” said BPS offical Slamet Sutomo.

He believes that wages should take up as much as 40% of production costs so that the welfare of the workers improves. “A 40-60 balance would be ideal. But that would depend on the government. Too much is taken by capital and this is why we should revise the manpower regulations,” he said.

Elsewhere, Thailand also increased minimum wages in 2011. The Central Wage Committee, which is a group of government, employer and labor representatives, meets at the end of every year to discuss labor issues. Over the next several years, consideration will be given to adjustments for inflation, expected to be made in a gradual manner that will not affect the economy.

On average, the minimum wage has increased by nearly 7% per year. The rationale behind the increase is to meet the government’s goal of reducing the disparity that exists in the country and to alleviate the burden on lower-income wage earners. The Social Security Office has said the increases will affect about 4 million workers.

Malaysia’s National Wages Consultative Council (NWCC) meets at least four times a year. Parliament has passed a bill that would empower enforcement officers to investigate, enforce and conduct inquiries at companies that flout the minimum wage order. It also specified heavy penalties for employers who did not follow minimum wage orders.

“An employer who fails to pay basic wages as specified in the minimum wage order to his employees commits an offence and shall on conviction be liable to a fine of not more than RM10,000 (about $3,300) for each employee,” the bill states. Employers, the bill added, includes members of a board of directors, body corporates, partnerships and societies.