Productivity Must Optimize Wages

KOMPAS/PRIYOMBODO

An employee works at the car assembly line of PT Gaya Motor in Sunter, North Jakarta, on Wednesday (18/07/2018).

JAKARTA, KOMPAS - The increased minimum wage must be followed by an increased productivity in businesses and workers. If no improvement is made to productivity, higher wages will not boost economic growth to improve the people\'s welfare.

One of the keys to growing the economy and the people\'s welfare amid the present uncertainties is to improve the quality of human resources.

"Productivity must be improved so as to attain prosperity and to drive the economy," Finance Minister Sri Mulyani Indrawati said on Wednesday (17/10/2018) in Jakarta, after a meeting with the House of Representatives Budgetary Committee.

Sri Mulyani said the positive impact of increased minimum wage depended on the capacity of the business sector to increase its competitiveness. Labor productivity must also be increased in order to support the 2019 economic growth target, which was expected to be more challenging. Growing the national economy depended heavily on industrial productivity.

According to Statistics Indonesia (BPS), economic growth reached 5.27 percent in the second quarter. Household consumption contributed half of the 5.27 percent growth rate, or 2.76 percent.

According to the Manpower Minister’s Oct. 15, 2018 circular, the minimum wage will increase 8.03 percent in 2019 based on 2.88 percent inflation and 5.15 percent economic growth. Governors in each province must set and announce their regional minimum wage on Nov. 1.

Purchasing power

Businesspeople believe that the 8.03 percent increase for the 2019 minimum wage would maintain purchasing power and public consumption growth, especially among workers. On the other hand, businesspeople must keep their businesses balanced, as the wage hikes occur during challenging economic conditions.

"Basically, the wage increase will increase the purchasing power of workers," said Ade Sudrajat, chairman of the Indonesian Textile Association (API).

Meanwhile, Adhi S Lukman, chairman of the Indonesian Food and Beverage Producers Association (GAPMMI), said the increased minimum wage was expected to maintain consumption growth. However, in view of the global condition, the wage hike could increase operational costs and reduce competitiveness.

"So, businesses must be smart in maintaining this balance and look for alternatives to reducing costs in other sectors," Adhi added.

Indonesian Footwear Association (Aprisindo) chairman Eddy Widjanarko said that the price of footwear would be raised accordingly with the minimum wage hike, based on expectations that economic uncertainties would remain in 2019.

Fajar Budiono, secretary-general of the Indonesian Olefin, Aromatic and Plastic Industry Association (INAplas), said that the increased minimum wage would be the right moment to maintain or increase purchasing power, especially of the lower middle class.

"The price of goods have begun to increase, so increasing the minimum wage will increase purchasing power," he said.

The government projects 5.3 percent economic growth in 2019. However, the growth estimate could be lowered to between 5.12 and 5.22 percent due to increased pressures from the escalating trade war between the United States and its trade partners, especially China.

Separately, the head of the Gadjah Mada University’s Center for Economic and Public Policy Studies, A. Tony Prasetianto, said that the government could still maintain economic growth amid the unpredictable global economy. It remained uncertain whether the US Federal Reserve would raise its interest rate three times in 2019. (KRN/CAS)