Everchanging Concept of Minimum Wage

KOMPAS/TATANG MULYANA SINAGA

Around 1,000 workers demonstrated against the Minister of Manpower Circular addressed to governors throughout Indonesia regarding the determination of the 2021 Minimum Wage during the Covid-19 Pandemic at Gedung Sate, Bandung City, Monday (27/10/2020). They are demanding an increase in the 2021 minimum wage of 8.5 percent.

Under the international concept, minimum wage is a form of protection provided by the state to workers as a social safety net so that the wage of workers does not fall into the free market mechanism.

Why did the state intervene? Because there are groups of workers who are assumedly unable to protect themselves, such as workers with low education, those without skills, contract workers and workers whose working periods less than one year. Thus, there should not be workers whom are paid below the minimum wage (MW) because the concept of state protection is irrelevant. Unfortunately, the concept of MW in Indonesia is applied in a complicated way so that in its implementation there are a lot of trouble, they are difficult to comply with and prone to deviations.

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In many international practices, MW generally refers to two simple concepts, namely the provincial MW and the sectoral MW. However, Indonesia introduced three forms: the provincial MW, the regency/city MW and the sectoral MW, with different amounts of wages. Then, there is the possibility that the MW is not implemented with the “postponement” mechanism, of course with tight requirement and evidence. Consequently, such “postponement” practice creates ambiguity regarding the certainty of the system. As a result of this complexity, many complications have occurred which have triggered demonstrations by workers, labor law cases and corrupt practices.

Biased alignments

The government\'s high alignment with formal workers has had fatal consequences. The three MW concepts are difficult to implement in the real conditions of our workforce, which faces dualism in the labor market.

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Let us look at the following facts, according to Statistics Indonesia’s (BPS) February 2020 data, the number of employed people stood at 131.03 million people. A total of 74.04 million people (56.50 percent) work in informal activities. Meanwhile, almost 70 percent of workers only graduated from junior high school.

The 2016 Economic Census data shows that there are 26.7 million employers, but only 447,000 (2 percent) of them are medium and large-scale enterprises with 16.6 million workers.

However, there are 26.2 million small and micro businesses with 53.7 million workers which do not receive enough attention, but are forced to comply with the minimum wage regulations, which actually should be relevant only for the 2 percent group of business entities.

The government policy usually focuses on regulating this 2 percent group, possibly because it is on this business scale that the government gets large tax income. However, there are 26.2 million small and micro businesses with 53.7 million workers which do not receive enough attention, but are forced to comply with the minimum wage regulations, which actually should be relevant only for the 2 percent group of business entities.

How could these two groups be required to pay the same obligation, while their abilities differ? How do we expect equal compliance from the owners of budget hotels and five-star hotels? How do we expect equal compliance from a food stall and fancy restaurants, from a small grocery stalls and Indomaret convenience store?

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This is also a dilemma faced by the labor inspectors: how to enforce the law on these small and micro business actors as nearly 99 percent of these business groups are unable to pay the MW obligations plus the obligation to pay mandatory contributions for the Jamsostek social security and the health security. If a law enforcement approach is carried out, millions of small and micro business actors will face criminal charges.

Kompas/Wawan H Prabowo

Workers in the electronic metal and machinery sector demonstrate at the Arjuna Wijaya Horse Statue area, Gambir, Jakarta, Tuesday (10/11/2020). They demanded health improvements during the Covid-19 pandemic.

So, the fundamental question is who actually enjoys this MW policy?The answer is the group of workers in medium and large enterprises. But not all! This is because a research by the Asian Development Bank states that compliance with MW payments only occurs in 47.2 percent of companies.

The highest compliance is in the garment and textile sector. That too was the result of the advocacy from the labor union, which happens to have solid presence in this sector. ILO Convention No. 131 concerning Fixing Minimum Wages states that the determination of the minimum wage must meet four conditions: its coverage must be broad, it must be based on tripartite negotiations, it takes into account family needs and economic factors and its formulation must be as simple as possible.

Fair wage formula

The formula for determining minimum wage in Indonesia always changes according to short-term business needs. During the New Order era, the MW was determined using the regional minimum wage (UMR) concept, which is based on the workers’ cost of living components.

After the 1998 reform, it was amended again by adding some components and there were also the addition of regency/city minimum wage and sectoral minimum wage through the issuance of Law No. 13/2003. In 2015, the MW formula was again amended with the issuance of government regulation (PP) No. 78/2015 (replacing the PP No. 8/1981) and, finally, it was amended in 2020 with the enforcement of the Job Creation Law.

Why did Indonesia frequently change the minimum wage policy? The straightforward answer is it is because of the lack of planning capacity of the Manpower Ministry in creating a simple wage system with broader compliance and coverage. This also relates to the existence of the manpower minister, which so far had not been considered important because his or her appointment was not based on expertise, but rather based on political reasons. Such practice must be stopped immediately because the labor problem will be more complicated in the future.

In fact, if we want to make it simplified, the wage system suitable for Indonesia can be made with two models, namely the provincial minimum wage (UMP) and the decent living wage (UHL). Since the minimum wage is only applied on single workers with a working period of less than one year, the UMP should only apply to small and micro-scale enterprises.

So, the amount of the decent-living wage received by the workers will be in accordance with the productivity level of each company.

Why is the provincial minimum wage not the regency/city minimum wage? This is because in every province there is already the Tripartite Wage Council, while not all districts and cities in Indonesia have the Tripartite Wage Councils. For medium and large scale companies, the wages are no longer refer to the minimum wage, but the decent-living wage, the amount of which must be above the provincial minimum wage. The mechanism for determining the decent-living wage is no longer through the Tripartite Wage Council, but through bipartite negotiations in each company. So, the amount of the decent-living wage received by the workers will be in accordance with the productivity level of each company.

The basic wage of a five-star hotel employee will definitely be higher than that of a non-star hotel employee. This model of wage negotiations will be fairer and ensure harmonious industrial relations.

The basic philosophy of the minimum wage is made as an instrument for the state to protect vulnerable workers (non-standard employment) in order to avoid exploitation. The state does not need to be present to deal with the minimum wage for professional workers in medium and large business groups. The regulations they need are no longer about minimum wage issue, but there are other problems, such as job discrimination, increased productivity, ease of doing business and taxes.

Now let\'s make serious arrangements so that we don\'t fall into the old adage: (we) failed because the rapid development of complexity often overpowers us due to slow adaptability.

Kompas

Rekson Silaban

Rekson Silaban, Director of Indonesia Labor Institute