Labour standards under decentralisation and globalisation : the impact of the minimum wage policy in West Java, Indonesia : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Development Studies at Massey University, Palmerston North, New Zealand

Abstract

This study explores the importance of the minimum wage policy in West Java, Indonesia, within the overall framework of development and in the face of globalisation and decentralisation. A holistic approach to the minimum wage policy is applied. Generally, the study assesses the impact of decentralized minimum wage fixing processes on employment and participation of trade unions. In addition, it explores whether the minimum wage policy assists workers in coping with the negative effects of globalisation. It also explores the link between minimum wages and decent work. This study reveals that while there is some evidence of employment losses due to increases in wage levels in West Java, it did not find conclusive evidence that minimum wage levels were the main factor responsible for the employment decline. It is likely that a combination of factors such as a decrease in global demand for Indonesian manufacturing products and the current macro-economic conditions in the country, are also responsible for the employment decline. This study finds that the process of minimum wage fixing at local level has a positive impact on trade union participation in wage bargaining. The empowerment of trade unions through new legislation has enabled independent trade unions to flourish, which allows workers to join any trade unions. Consequently, minimum wage bargaining at district/city level is more dynamic than the centralized system of minimum wage bargaining in the past. Trade unions are able to express their views on what the minimum wage levels should be. Moreover, the minimum wage fixing processes at local level have the potential to promote decent work. The minimum wage fixing processes are an alternative to wage bargaining and can accommodate even sectors where trade unions are least active or non-existent. The minimum wage processes at district/city level are already established and they are in position to expand to a wider framework of providing welfare for workers. However, decent work objectives will not be achieved without the full cooperation of both central and local governments. Under the current decentralisation process, where central and local government views are still not in agreement, it is difficult to see how decent work can be applied nationally. Thus, the minimum wage policy and trade union development are important in the overall development paradigm. Both ensure the existence of a rights based approach to development where workers are given rights to organize as well as earn a basic living. Nevertheless, the development of trade unions in developing countries is under threat from flexibilisation of the workplace in which jobs have become less and less secure. The minimum wage policy, however, is still viable because it covers all types of workers. At the very least, minimum wages provide a safety net wage that can prevent real wages from falling. The writer suggests that more studies should be conducted on the extent and effectiveness of trade union participation in minimum wage bargaining. In addition, further studies should be conducted on the effect of minimum wages and trade unions on non-standard or flexible workers. Flexible workers, whether they are fixed-term contract and outsourced workers, are becoming an important part of the global labour market and increasingly pose a challenge to the increasingly important role of trade unions in developing countries.