Threat of Layoffs

In the past two months, the basic tone and mainstream of our industrial and employment world has been dominated by news about the threat of layoffs at various factories throughout West Java as a manifestation of the impact of the global crisis and the debate over increasing the minimum wage. In an effort to overcome the impact of the global crisis, the central government suddenly issued the Unpopular 4 Ministerial Decrees and immediately caused a wave of protests from the workers. For entrepreneurs, this situation is like falling on a ladder: orders decrease, wages must go up. This condition was responded by stating the possibility of reducing workers through various means including layoffs. For workers, this situation is also threefold: threatened with layoffs and threatened with receiving wages that do not meet the necessities of life.

Such an industrial and employment situation clearly does not benefit anyone, in fact, it even brings the potential for social unrest which may spread, as was discussed in this daily report some time ago (PR 21 Nov 2008). In this review, the daily questioned whether the government was ready to take concrete steps to overcome this problem. This paper intends to appreciate the efforts that have been made by the provincial government and propose further steps that the government can take to prevent unrest as well as initiate concrete actions to boost the domestic market and stimulate the real sector, two efforts that have been widely voiced by various groups, especially entrepreneurs to prevent the potential expansion of the impact of the global crisis and the emergence of a real crisis for our society.

Appreciation is given to the provincial and district/city governments in West Java which have issued policies to increase the minimum wage for 2009 by 10-12%. This policy of increasing the minimum wage has thus demonstrated the ability of local governments to be very realistic and understand the situation of the people, compared to the central government through its SKB. Why? The determination of the increase in the minimum wage has helped maintain the purchasing power of working people amidst the high inflation rate and the worrying rise in the prices of necessities.

People’s purchasing power is a key word in an effort to boost the domestic market and drive the real sector. The threat of layoffs and low wage increases will actually create conditions that are counterproductive to these two efforts. Various studies and careful observations show that working people are the main movers and spenders of local economic activities and products to meet their daily needs. Industrial centers and centers of workers’ settlements are the very real heart of local economic activity. Mass layoffs, as happened in 1998 and 2002, have instantly dimmed economic businesses and business product markets and brought a chain effect in the form of unemployment among those business actors. Low wages have no different implications because low purchasing power makes consumption much lower. Much decreased consumption has resulted in sluggish business activities which in chains and in the aggregate will make people’s economic life sluggish.
That is why the government is very interested in maintaining the smooth running of economic activities and needs to take various steps and supportive policies aimed at both employers and workers. The minimum wage increase policy needs to be complemented by a policy of seriously overseeing its implementation. In this case the Ministry of Manpower, the Regional Office of the Ministry of Manpower in the Province as well as the City/District Manpower Office as the agency responsible for oversight of labor issues needs to monitor companies that do not implement it more strictly and check whether the procedure for not paying the minimum wage has been followed.

If a company is truly unable to pay its workers’ wages according to the applicable UMK/UMP, then the company must apply for a postponement of a wage increase according to the procedure stated in Kepmenakertrans No. Kep 231/Men/2003 concerning Procedures for Postponing the Implementation of the Minimum Wage. The current situation of the global economic crisis which is seen as a threat to business continuity in Indonesia is absolutely no reason to violate this procedure.

The Decree on Manpower and Transmigration clearly contains a rule that a company that will ask for a suspension must negotiate the postponement plan with the labor union in the company or with the workers’ representatives if there is no labor union in that company (article 4). If this procedure has been carried out, then the next stage in applying for a suspension of the application of the minimum wage requires that the company must attach the company’s financial statements consisting of a balance sheet, calculation of loss/profit along with explanations for the last two years (article 4 paragraph 1b). Requests for suspension must also be accompanied by developments in production and marketing for the last 2 years as well as production and marketing plans for the next 2 years (article 4 paragraph 1f). Based on the request, the Minister of Manpower or the appointed official may request a public accountant to examine the financial situation in order to prove the company’s inability to pay for the company’s expenses (art. 4 paragraph 3).
The Minister of Manpower and Transmigration Ministerial Decree clearly must be interpreted that the postponement of the application of the minimum wage can only be carried out if the company concerned has actually made a loss as indicated by unhealthy financial reports for the last 2 years, and not as a tool to reduce labor costs in the production cost structure. The Minister of Manpower and Transmigration Decree is also a tool for the Ministry of Manpower, the Regional Office of the Ministry of Manpower and the Manpower Office to professionally assess the feasibility of a company getting a suspension. The plan to increase wages by 10% in the garment and textile sector, on average, only increases the increase in labor costs between 1% -2% in the production cost structure, while at the same time the price of cotton fiber as a raw material for textiles falls from $ 89 per ton to $ 49 per ton from March to October 2008 and is predicted to continue to fall until December 2008 (source: http://www.indotextiles.com). If it is assumed that the proportion of raw materials in the production cost structure of a textile company is 30%, then the reduction in the price of cotton fiber raw materials will correct production costs by up to 13.5%, far outstripping the increase in labor wages.

Another complete policy that can be carried out by the government is to provide incentives for employers to comply with paying the minimum wage. The incentive is in the form of abolishing legal and illegal local regulations from the province to the village level to ease the burden on production costs. AKATIGA’s 2007 study on business constraints in the textile and textile product industry in the city and district of Bandung shows that the main obstacle faced by entrepreneurs is the high rate of levy which reaches 9.3% of the total production cost. Elimination or reduction of levies will greatly assist employers in paying workers’ wages in accordance with government agreements and decisions. These policies are simple and not new and difficult to implement, because the complete institutions are already available, but the results will be very effective and pleasant and reassuring. for all parties.