At the end of the year 2012, there were
mass labor protests all over Indonesia demanding higher wages and better work
condition. Raising the minimum wage has been one of the most controversial issues nowadays, and many debates have heated up
regarding whether it will bring more harm than good. Starting from 2013, the
governor of DKI Jakarta has eventually decided to raise minimum wage by 44%
from 1,56 to 2,2 million Rupiahs. Many parties claim the decision is irrational
and that it will burden employers, while some others believe labors deserve a
higher standard of living as their value of wages have remained constant over
the past 10 years.
What
exactly are the arguments of those who agree and oppose? Advocates for a higher wage argue that on the
one hand, an increase in minimum wage rate can also increase the standard of
living of the poor. Through this policy, workers are expected to increase their
productivity. This move could also act as an economic stimulus, as the more
money low-income households earn, the more money they spend—thus more Rupiahs
are poured into the economy. Some even say there will be less turnover and costs
for new workers training could be kept down.
On
the other hand, oppositions argue that higher wages can harm the employers,
especially those who own small businesses. A rise in wage can cause higher
costs. They won’t be able to hire the amount of workers desired and therefore
will hire less workers. In this case, rising number of unemployment is
inevitable as there are more labors supplied than demanded. It is also expected
to result a rise in price due to the rising wage and production cost. These are
the realities many people are afraid of. Furthermore, according to a liberal
research group, Economic Policy Institute, increasing minimum wage has not
proven to be effective in reducing poverty rate—even some studies demonstrate
little to no relationship between them.
However,
there is this strong argument from Ezra Klein at Washington Post on February 14th 2013 on why the
government should raise the minimum wage: since 1970, the corporate profits
have been increasing significantly while labor’s share of those profits, in
contrast, is gradually declining. Skills-based technological change,
globalization, and decreasing labor unions are a few reasons why it could
possibly happen, but most of all, they have very little power to negotiate
raising their wages. Such thing eventually leads to a higher gap between the
rich and the poor.
In
this kind of situation, the government is faced by two options: fulfilling the
needs and demand of workers, or protect the developing businesses. Local
government has to consider many parties in making such decision. If the
decision is to raise the minimum wage, then at the same time, employers should
also be given help in lowering cost production.
Regardless all
the pros and cons of raising minimum wage, the government could also learn from
Britain, whose minimun wage rate has been named as the most successful
government policy over the past 30 years, according to BBC in a survey of British political experts. It all happens
because they apply lower floor to young people. The difference is adjusted
annually on the advice of the Low Pay Commission, until they both finally have the
same minimun wage rate. Many doubted this policy, but the consensus saying
Britain’s minimum wage has done little or no harm proves that it has been
carefully and effectively imposed. It also results a shrinking wage gap and an
increasing income in general. Women are some of the parties who benefit the
most as wage inequality fell more for them than for men.
Indonesia
might have different conditions than Britain, but their strategy could
definitely be an example to learn from. If the government has a plan indeed in
making a similar policy then it is the task of policy-makers to ensure that it
will not create negative impacts on Indonesian labor market. A good
communication between employers and workers also plays an important role in
order to make government’s policies and efforts regarding minimum wage rate
successfully implemented. Workers’ main concern is about their welfare while
employers’ main concern is about profits, so it will be best for both to have
the understanding and no party will feel disadvantaged.
Reference:
“Increasing
the Minimum Wage: Pros and Cons”
“Pro
Kontra Upah Minimum”
“This
graph is the best argument for raising the minimum wage”
“Minimum
wage ‘most successful government policy”
“Free
exchange: The argument in the floor”
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