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.

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