Labour Intensive Minimum Wage: Executive Discretion on Regulated Labour (Part III)

Labour-Intensive Minimum Wage Convolution

The primary rationale of intensive minimum wage for the employer association is that
wage increases are not proportional to increases in worker productivity. As this type of industry uses human resources more than other industries, increases in cost should be comparative with the (production) output. Employers argue that as they have no or little control over cost increases, that include wage, it is up to the employee to increase their productivity. In this view, it seems unfair for an employer to pay minimum wage to the employee; people who are newly entering the labour market as the regulations intended, with very low productivity. Moreover, to those who have been spent quite a lot of time in the labour market but having very little productivity growth? This is where the assumption of the minimum wage is off balance.

The regulatory objective of the minimum wage is to protect workers in the labour market. It creates a minimum standard of living to protect workers wellbeing. To construe floor wage merely from an economic perspective and simply productivity, which means output per hour, is not the approach that the regulator wanted to convey. Worker wellbeing and health, the focal point of the minimum wage, supposedly influence productivity, but it is not the sole influencing factor. Education and training, people development, and skills enhancement are also affecting productivity. Although, it is something that many employers in the garment industry put aside.

Labour collectivism objective on the concept of minimum wage is not perfect either. As they become too political and solely depend on the number of members to increase bargaining position in the market, the unions lose the ability to see the big picture in the discourse of minimum wage. They did not factor public welfare policy, job quality, job market data, country economic data, the nature of the (garment) business, the unilateral power of the global corporation in the supply chain, and the socio-political aspect of economic globalization and liberalization. They demand high wages by using the power of the masses without assessing the risks of it to the already vulnerable position of workers in the labour market. Let alone, providing alternative of workers empowerment. The wellbeing of workers, as the union sees, is only viewed through a wage lenses. In other words, similar with the employer, the union only factor in economic interests on the discourse of minimum wage.

If workers wellbeing and health are not in the mind of the employer and worker ultimately pay the price while in fact, their position in the market is weak, should Government interfere by upholding the regulations to protect workers? Unfortunately, regarding the labour-intensive minimum wage, this is not the case.  The Government is taking a stand on the economic rationale for fear of losing investors and jobs. The idea of unemployment rate increases that could create social and economic problems; the Government seems only to have one message to the labour market that it has only one option of forfeiting worker wellbeing and health by relaxing the principal idea of workers protection that underpins minimum wage conception in order to keep labour market stability.

The notion that there is a regulatory gap (of labor-intensive wage) which pressures the executive branch to create a regulatory framework becomes somewhat absurd. Certain labour intensive industry (garment sector) falls into the industry (sector) classification. The minimum wage regulations stipulate that when a sector can agree on a different minimum wage (together with trade unions) as long as the sector based minimum wage amount is not set lower than the prevailing (provincial/municipal) minimum wage. The role of the executive branch, even when it acts as the legislative body as it sometimes does in Indonesian state administration system, is to review the process and approved on the agreed amount. It does not play an active role in determining the agreement processes or the result of but to monitor the prior and ensure that the later complies with the set regulations.

The Government uses state administration law (UU No. 30 of 2014) as one of its core legal reasoning to accept a labour-intensive minimum wage. This is a very rare move because although labour law is a combination of private and public law, it does not include state administration law into the equation. Theoretically, administrative law is a set of rules that govern the activities of government agencies. As a body of law, government activities, nonetheless, bound by the principle of legality. The principle contains the importance that government official or agency that wishes to issue a decision or take administrative action is abode by laws and regulations. As the subject matters are wage private employment setting, commonsensically the laws and regulations, in this case, refer to labour law and regulations.  What is very interesting, although the Decision has been made, the practical process of implementing the special labour intensive minimum wage involves the agreement of the union at the enterprise level. The Government somehow put the decision in the hand of (private) agreement realm. It emphasizes the importance of agreement to promote sound Industrial Relations in the implementation stage although the regulatory making processes itself likely taken the sideline. It is likely that the requirement shows that Government does not take sides but leave it to the enterprise level industrial relations mechanism in the implementation of the decision. It could be argued that at some point the Government still recognizes the role of labour collectivism in the wage discourse.

Overall, the labour-intensive minimum wage is a complex issue. The regulatory implication is perhaps is as complex as the processes. The West Java Governor decision may inspire related government agency to broaden the application to other labour intensive industry than the garment sector. It is likely to be used as a legal precedent of other Provincial Administration to approve sector based minimum wage that is less than the provincial/municipal minimum wage. It could be used as a regulatory benchmark for a future sector-based minimum wage. Most importantly, the decision re-positioned the government’s stand in industrial relations matters to a body of law that actively interferes and directs the course of industrial relations. At this point there is no convincing argument to ascertain whether the labor-intensive minimum wage is a sound constitutional product that fills the uncertain legal void, and so they have said or would become a negative precedent in Indonesian industrial relations dynamic. But one thing for sure, workers in the labor-intensive industries remain in the weakest position on the topic of minimum wages.

Indonesia’s Industrial Dispute Resolution Act No. 2 of 2004

Where there is relationships between two or more parties that have different interests, dispute is inevitable. In employment relationship, industrial dispute constitute disagreement between the employer and employee (or union) on working conditions, the set of work rules or responsibilities, or other employment matters. Although the word dispute is used to label workplace interest differences, industrial dispute does not construe as altercation or crackdown but heated prolong debate, for instance, on wage negotiation likely show industrial dispute.

Industrial dispute resolution in Indonesia is regulated by Industrial Dispute Resolution Act No. 2 of 2004. It set a mechanism and system of alternative dispute resolutions before it is brought to the Court. Depend on the type of dispute, conflicting parties could bring their dispute through mediation, arbitration and conciliation instrument with regulatory agency or state appointed third party.

The Act recognize industrial dispute not only between employer and employee/union but also between unions in one workplace. This perhaps to accommodate the possibility of dispute arises due to interests conflict and (multi) union competition as a logical result of the state laissez-faire viewpoint on labour collectivism which is congealed by the Labour Union Act No. 21 of 2000.

Dimana ada hubungan antara dua atau lebih pihak yang memiliki kepentingan berbeda, perselisihan tidak bisa dihindari. Dalam hubungan kerja, perselisihan industrial merupakan ketidaksepakatan antara majikan dan karyawan (atau serikat pekerja) mengenai kondisi kerja, seperangkat peraturan atau tanggung jawab kerja, atau masalah dalam hubungan kerja lainnya. Meskipun kata sengketa digunakan untuk memberi label perbedaan kepentingan tempat kerja, perselisihan industrial tidak ditafsirkan sebagaipertengkaran atau tindakan keras tapi perdebatan perpanjangan panas, misalnya, mengenai negosiasi upah mungkin menunjukkan telah timbulnya perselisihan industrial.

Penyelesaian perselisihan industrial di Indonesia diatur oleh Undang-Undang PNo. 2 tahun 2004 tentang Penyelesaian Perselisihan Industrial. Peraturan tersebut mengatur mekanisme dan sistem penyelesaian sengketa alternatif sebelum diajukan ke Pengadilan. Bergantung pada jenis perselisihan, pihak-pihak yang bertikai bisa membawa perselisihan mereka melalui mediasi, arbitrase dan konsiliasi dengan badan pelaksana (dinas tenaga kerja) atau pihak ketiga yang ditunjuk negara.

Undang-undang tersebut mengakui perselisihan industrial tidak hanya antara pengusaha dan karyawan/serikat pekerja, tetapi juga di antara serikat pekerja/buruh di satu tempat kerja. Hal ini mungkin untuk mengakomodasi kemungkinan timbulnya perselisihan karena konflik kepentingan dan (multi) kompetisi persatuan sebagai hasil logis dari sudut pandang laissez-faire negara terhadap kolektivisme pekerja/buruh yang diperkuat oleh UU Serikat Pekerja/Buruh No. 21 tahun 2000.

UU No. 2 Tahun 2004 tentang Perselisihan Hubungan Industrial (English)

UU No. 2 Tahun 2004 tentang Perselisihan Hubungan Industrial

Indonesian Labour Union Act No. 21 of 2000

Indonesian labour unions have obtained strength and numbers since the promulgation of Labour Union Act No. 21 of 2000.  With repressed history throughout the era of the Old and New Order regime, labour unions have thrived into at least four major union confederations: Confederation of All Indonesian Trade Union (K-SPSI-Rekonsiliasi), Confederation of All Indonesian Trade Union (K-SPSI-Kongres Jakarta), Confederation of Indonesian Trade Unions (K-SPI), and Confederation of Indonesian Prosperity Trade Union (K-SBSI).[1]

Over the years, labour unions have increasingly effectual in pushing higher wages and better working conditions. Although, recently unions are heavily blemished with political agenda, in particular during the Presidential Election in 2014, the roles of trade unions are still very much relevant in shaping Indonesian Industrial Relations dynamics.

Serikat pekerja Indonesia telah memperoleh kekuatan dan jumlah sejak diundangkannya UU Serikat Pekerja No. 21 tahun 2000. Dengan sejarah yang tertekan sejak era Orde Lama, serikat pekerja telah berkembang menjadi setidaknya empat konfederasi serikat pekerja utama: Konfederasi Seluruh Serikat Buruh Indonesia (K-SPSI-Rekonsiliasi), Konfederasi Serikat Buruh Seluruh Indonesia (K-SPSI-Kongres Jakarta), Konfederasi Serikat Pekerja Indonesia (K-SPI), dan Konfederasi Serikat Buruh Sejahtera Indonesia (K-SBSI).

Selama bertahun-tahun, serikat buruh semakin mantap dalam mendorong upah yang lebih tinggi dan kondisi kerja yang lebih baik. Meskipun, baru-baru ini serikat pekerja sangat diliputi oleh agenda politik, khususnya selama Pemilu Presiden pada tahun 2014, peran serikat pekerja masih sangat relevan dalam membentuk dinamika Hubungan Industrial Indonesia.

 UU No. 21 Tahun 2000 Trade Union English

UU No. 21 tahun 2001 tentang Serikat Pekerja

[1] ILO, Workers’ and Employers’ Organizations in Indonesia and Timor-Leste (2017) <–en/index.htm&gt;

Workplace Safety Act No. 1 of 1970

Research suggests companies that invest in occupational safety and health can expect to decrease accidents, incidents, injuries, and illnesses. This will result in cost savings such as increased productivity, reduced of accident/incident related cost, decrease on workers’ compensation and medical expenses, retention of employees, and overall increased satisfaction among employees.

Perusahaan yang berinvestasi dalam keselamatan dan kesehatan kerja dapat mengharapkan berkurangnya angka kecelakaan, insiden, cedera, dan penyakit di tempat kerja. Hal ini akan menghasilkan penghematan biaya seperti peningkatan produktivitas, pengurangan biaya kecelakaan / kejadian, penurunan biaya kompensasi dan biaya kesehatan pekerja, retensi karyawan, dan meningkatnya kepuasan pekerja secara keseluruhan.

Indonesia has Work Safety Act (UU No. 1 Tahun 1970) which became the legal umbrella for other workplace safety and health regulations. Its regulatory agency is the Minister of Manpower and Manpower agencies at the local level .

Indonesia memiliki Undang Undang Keselamatan Kerja (UU. No. 1 Tahun 1979) yang menjadi payung hukum bagi peraturan-peraturan keselamatan dan kesehatan di tempat kerja lainnya. Badan pengatur ketentuan tersebut adalah Kementerian Ketenagakerjaan dan Dinas Ketenagakerjaan di tingkat daerah.  

UU No. 1 Tahun 1970 English

UU No. 1 Tahun 1970 Indonesian

Minister of Manpower Regulation No. 1 of 2017: Wage Structures and Scales

According to the Minister of Manpower Regulation No. 1 of 2017, companies in Indonesia are required to establish wage structures and scales (WSS) by 23 October 2017 and inform it to their workers. Administrative sanction could be imposed to those that have not had it in place.

WSS is a hierarchy of wage levels with the range of the nominal value of wages pursuant to the worker grouping.  When determining WSS,  a company could consider job classification, position, tenure, education, competence or skills of employees.

The regulation includes at least four examples that can be referred by companies when establishing their WSS:

  • The simple-ranking method
  • The two-point method
  • The point-factor method (for existing companies)
  • The point-factor method (for newly establish companies)

Depending on the complexity of the job classification, organizational structures and the size of the company, each method could be freely referred.

Menurut Peraturan Menteri Ketenagakerjaan No. 1 Tahun 2017, perusahaan di Indonesia wajib menyusun struktur dan skala upah (SUSU) dan memberitahukannya kepada pekerja selambat lambatnya tanggal 23 Oktober 2013. Sanksi administratif dapat dikenakan bagi perusahaan yang tidak memiliki struktur dan skala upah. 

SUSU adalah hirarki tingkat upah dengan kisaran nilai nominal upah sesuai dengan pengelompokan pekerja. Saat menentukan posisi SUSU, perusahaan bisa mempertimbangkan kelas, posisi, pekerjaan, pendidikan, kompetensi atau keterampilan pekerja.

Peraturan tersebut memuat setidaknya empat contoh yang dapat dirujuk oleh perusahaan mengenai bagaimana membangun struktur dan skala upah, yaitu :

  • Metode pemeringkatan sederhana
  • Metode dua titik
  • Metode poin-faktor (untuk perusahaan telah lama berdiri)
  • Metode poin-factor (untuk perusahaan baru)

Bergantung pada kompleksitas klasifikasi pekerjaan, struktur organisasi dan ukuran perusahaan, setiap metode dapat dengan bebas dijadikan rujukan penyusunan SUSU.

Permenaker No. 1 Tahun 2017