Building an effective national wage system in Indonesia

Representatives from government ministries and institutions, employers’ and workers’ organizations as well as national and provincial wage councils gathered together at the two-day workshop in Jakarta, examining and discussing the development of a national system for determining above-minimum wages using performance-management system (PMS). The development of the national wage system was part of the recommendations of the National Consolidation Conference of All Wage Council in October 2017.

The workshop titled “National Workshop on Wage System”, held from 4-5 September 2018, was aimed to share experiences and best practices on the implementation of PMS in selected countries and to provide inputs on the development of PMS in the country. The workshop also provided a venue participants to identify ways forward to the development plan of national PMS for Indonesia.

The workshop was conducted by the ILO through its Labour Standards in Global Supply Chains (LSGSC) Project. Under this Project, the ILO together with its social partners have conducted a number of activities to facilitate the development of a wage policy monitoring system as the basis for the development of an evidence-based wage policy making mechanism.

The minimum wage has a crucial role in promoting more dynamic collective bargaining. Thus, the minimum wage should be part of the integral tool of the wage system which is negotiation and collective bargaining."

Daniel Kostzer, ILO Senior Specialist on Wages

Best practices from some neighboring countries were shared during the workshop. T. Shanmugam, the Secretary of National Wages Consultation Council of Malaysia and Nora Azmani Mahasah, Principal Assistant in Harmony Division of Industrial Relations Department of the Ministry of Human Resources of Malaysia, shared the minimum wages policy and productivity-linked wage system.

“The minimum wage setting in Malaysia is examined and decided by the National Wage Consultation Council consisting of equal representation of employers and workers based on empirical data such as poverty line income, consumer price index, labour productivity growth and so forth,” said Mr Shanmugam.

Meanwhile Ms Mahasah explained that the productivity-linked wage system is a voluntary system that has been implemented in Malaysia since 1996. “In this system, the increase of wages is in line with increase of productivity. The system benefits both workers and employers as it increases the work performance of both of them,” she said.

Sharing the results of the comparative studies conducted by the National Wage Council of Indonesia in three countries, Joko Santoso presented different systems implemented by Japan, the Philippines and Australia. The results of this comparative studies would be used as considerations in the development of the national wage setting mechanisms, for both minimum and above-minimum wages.

The results of these group discussions will be used as inputs to the National Wage Council to improve mechanisms of minimum wage fixing, including the development of the above-minimum wage system."

Christianus Panjaitan, Manager of ILO’s LSGSC Project

To better understanding the government’s plan for development of a just and competitive wage system in Indonesia, Rahma Iryanti, Special Advisor on Social and Poverty Reduction of the National Development Planning Agency (Bappenas) highlighted the history, process and development of minimum wages setting and fixing in Indonesia. She also explained the process of the current minimum wage setting that is determined based on the inflation rate and the economic growth.

Responding to various best practices and comparative studies presented in the workshop, Daniel Kostzer, ILO Senior Specialist on Wages, reminded the participants that there was no single answer to the labour market challenges and to development of wage system in a country. He also emphasized the crucial role of empirical data and social dialogue in wage negotiation and analysis.

“The minimum wage has a crucial role in promoting more dynamic collective bargaining. Thus, the minimum wage should be part of the integral tool of the wage system which is negotiation and collective bargaining,” he added.

The workshop concluded with group discussions, examining the current minimum wage setting in the country. Three questions raised during the group discussions included positive and negative impact of the current minimum wage system, the usage of empirical data, negotiation and collective bargaining as well as ideal principles in minimum wage setting.

“The results of these group discussions will be used as inputs to the National Wage Council to improve mechanisms of minimum wage fixing, including the development of the above-minimum wage system,” said Christianus Panjaitan, Manager of ILO’s LSGSC Project, adding that the workshop was part of the ILO support to Indonesia to developing a just and competitive national wage system.

The ILO LSGSC Project is aimed to support the enhancement of social dialogue among national and sub-national tripartite constituents on priority issues including wage policy and collective bargaining. Funded by the German Federal Ministry for Economic Cooperation and Development, the Project is also aimed to promote collective bargaining at enterprise level.