Wages and Productivity

KOMPAS/TOTOK WIJAYANTO

Workers\' demonstration – Workers, who are members of the Confederation of Indonesian Trade Unions (KSPI) and the Federation of Indonesian Metal Workers\' Union (FSPMI), stage a rally in front of the Presidential Palace on Tuesday (6/2/2018). Workers rejected low wages and urged the government to revoke Government Regulation No.78/2015 on wages.

Four years into the Joko “Jokowi” Widodo-Jusuf Kalla administration, the Manpower Ministry announced an increase in the 2019 minimum wage of 8.03 percent.

The technical process of determining the new minimum wage is not difficult because it is regulated in the Government Regulation No. 78/2015 on wages. In essence, the minimum wage increase in the coming year is based on the estimated inflation rate and economic growth in the current year.

Although the legal basis for the increase in the minimum wage is clear, the political impact is greater because it is related to the legislative and presidential elections. The Confederation of the Indonesian Workers (KSPI) opposed the 8.03 percent increase in the minimum wage and instead demanded a 20-25 percent increase. The demand is based on their surveys on the need for decent living in some cities.

While from the business side, an 8 percent increase is high enough because the business environment is still not conducive due to the depreciation of the rupiah and the increase in world oil prices.

The unfavorable business climate is also reflected in the decline in the projection of Indonesia\'s economic growth made by the International Monetary Fund (IMF), from 5.2 percent in 2018 and 5.3 percent in 2019 to 5.1 percent both for 2018 and 2019.

Regarding the increase in minimum wage, the government as a third party in industrial relations emphasizes the need to increase the productivity. If the increase in the minimum wage is not matched by an increase in productivity, at the macro level it will further affect economic growth.

Unfortunately, in many areas in various places, the increase in minimum wages is often unable to boost performance and only serves as a way to meet an increase in the prices, which is mandatory.

To improve work performance, a compensation package beyond minimum wages, is needed through a more complex scenario.

Technological challenges

In addition to technical and political problems, the determination of the minimum wage may also face a greater challenge, namely the technological revolution. In a study conducted by the Center for Community Empowerment (PKPM) at Atma Jaya University in 2013, many medium-scale apparel and footwear producers chose to replace workers with machines rather than having to follow the increase in the minimum wage.

In fact, relocating their factories to other provinces with lower minimum wages is not an option given the fact that the determination of the minimum wage is often made through an uncertain political

process. For entrepreneurs with sufficient capital, replacing labor with machinery (technology) can be the best option.

The World Bank\'s 2019 World Development Report entitled The Changing Nature of Work reviews comprehensively the various challenges of the world of works, including in developing countries. Startup companies in Atlanta, United States, can make a robot, which can sew automatically at high speeds. Their prices are cheaper than human power. According to Forbes Magazine (22/05/2018 edition), shoe producer Adidas plans to using a three-dimensional printing technology to mass- produce shoes.

Through this technology consumers can adjust their size and taste personally in a mass production system with lower prices and relatively fast production processes. If this technology is used to mass-produce goods, human beings will be eliminated in many industrial sectors.

With the use of artificial intelligence, such as the ability of computers to learn from data, huge data availability, and with the support of more reliable technology such as the speed of the internet, cloud storage techniques, and ecosystem integration through the internet for all, the business world will face two main challenges.

First, as shown in research by Deloitte consulting, more than half the jobs available today will dissapear and there will be several new jobs in 2030.

Second, job seekers should be equipped with new skills in order to be able to face the industrial revolution era. Other research estimates that by 2020, in the US, where 40 percent of its workers would be independent contractors, would enter the gig-economy era.

Imagine if developed countries were able to mass produce goods, there would be no more large orders if they were involved in the same business. They are able to fulfill most of the products that have previously been supplied by other countries due to the use of robots. Technology will change the supply chain of global industries, so we have to be prepared.

This year, the government is focusing on improving the quality of human resources. This program must be continued in 2019 and even in the new presidential term in 2019-2024. We can compete if the quality of human resources is adequate and the mastery of technology is one of the basic skills of the workers.

The 2018 Human Capital Index (HCI) shows that Indonesia is ranked 87th out of 157 countries. It means that the quality of our human resources is generally below average.

During the four years of their administration, Joko Widodo and Jusuf Kalla have done many things. However, there will be more problems and more needs to be done. If everything is carried correctly, the impact of the development can be really felt in the next few years.

Excessive power struggles, let alone unruly elections, are useless because they will only cripple our ability as a nation to face the extraordinary challenges in the future. (A PRASETYANTOKO, Lecturer at Atma Jaya Catholic University Jakarta)