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Consumption Patterns of Labors in Foreign-Invested Factories In 2018 International Conference on E-commerce and Contemporary Economic Development (ECED 2018) ISBN: 978-1-60595-552-0 Consumption Patterns of Labors in Foreign-invested Factories in Indonesia (Study in Pasuruan Regency) Mohammad Muiz FATHURROHMANa, Ismi IFTIKADb Master of International Trade, School of Economics and Management, Nanjing University of Science and Technology [email protected] , [email protected] Keywords: Minimum wage; Minimum wage legislation; Wage differentials. Abstract. This study tries to find out how labors in Pasuruan Regency spend their monthly payment. This study applies descriptive comparative method, while the analysis follows three rules of Engel’s Law. The result reveals that the first rule of Engel’s Law where ‘should the income increase, the percentage of expense for food is smaller’ is reflected, while the second and third rules that ‘the percentage of expense for cloths and houses is relatively stagnant and not relied upon the income level’ and ‘should the income increase, the percentage of expense for education, health, recreation, luxury and saving is increased’, respectively, are reflected to some extent. Introduction Consumption of labors is highly related to their income. Indonesia follows the principle of minimum wage for the labors. In determining the minimum wages, the government holds survey of Decent Living Needs. Generally it consists of an employee’s needs for food, clothing, housing, health, education and transportation. As of 2014, there are 59 items that should be contained in their wages. However, every year, this quantity increases. This study tries to find out how labors in Pasuruan Regency spend their monthly payment. A traditional list of immediate basic needs is food (including water), shelter and clothing. Many modern lists emphasizes the minimum level of consumption of basic needs is not just food, water, clothing, and shelter, but also sanitation, education, and healthcare. Thus, the problem is “How is the consumption pattern of labors in foreign-invested factories in Pasuruan Regency, based on their income level?” Overview of Labors and FDI in Indonesia Labors & Minimum Wage in Indonesia Minimum wage regulation is not new in Indonesia. It had already been a key element in labor policy for close to a decade prior to the downfall of the Soeharto regime in 1998. The standard was based on regular estimates of the cost living made by regional government of Manpower Offices. Minimum wage in Indonesia is different across the country’s provinces and cities. They are determined by regional wage councils and revised annually. FDI in Indonesia Rajenthran (2002) reported that Indonesia has the availability of vast, highly diversified natural resources, a huge potential domestic market, a competitive and productive labor force, and market oriented economic policy, amongst other factors, that have attracted FDI inflows. In Indonesia, FDI is regulated by Law No. 25 of 2007, where any form of FDI must be in form of limited liability company. The investment must be by way of the foreign investor holding shares in the company. Businesses with even 1% of foreign shareholders are considered as foreign-owned company. All foreign-owned companies in Indonesia are classified as limited liability company with foreign direct investment. Setting up a foreign invested enterprise (FIE) is a common method of creating an operation of foreign entity in Asian countries. Any one of a number of legal entities can be considered FIEs including equity joint ventures (EJV), cooperative joint ventures (CJV), wholly- owned foreign enterprises (WFOE) and foreign-invested companies limited by shares (FCLS). 414 Pasuruan Regency Pasuruan is a regency in the East Java province of Indonesia. Its population is 1,512,468 at the 2010 Census. It borders with Sidoarjo Regency and Java Sea in the north, Probolinggo Regency in the east, Malang Regency in the south, Batu City in the southwest, and Mojokerto Regency in the west. Pasuruan Regency has the fourth highest Minimum Wage in East Java, Indonesia. Methods Data Collection & Analysis This study applies descriptive comparative method. Data are collected through questionnaire. The questions are derived from Decent Living Needs as established by the government. The analysis technique used in this study is statistic descriptive. There are 59 multiple choice questions divided into seven criteria of needs; they are foods (11 items), cloths (13), houses (25), education (2), healthcare (5), transportation (1), and recreation and saving (2). Respondents are classified pursuant to their income level: above minimum wage (Over), minimum wage (Exact), and below minimum wage (Under). Their consumption on each criterion above is classified as: above the government’s calculation, at the government’s calculation, and below the government’s calculation. Subsequently, the classified calculation is multiplied by the total respondent with their income level to evaluate their consumption pattern. Respondents of this study are labors employed by 8 foreign-invested factories in Pasuruan Regency, East Java, Indonesia. Each factory will be represented by 5 labors. The total will be 40 respondents. Findings From 40 respondents, 21 (52%) of them are males, and the remaining 19 (48%) are females. Regarding their income level, 14 (35%) of them are overpaid, 15 (37.5%) are exactly-paid, and 11 (27.5%) are underpaid. Foods Consumption. Male labors with overpaid minimum wage spend 37.3% above government’s calculation for food consumption. Meanwhile, for those with the minimum wage, they can spend 68.2% less than the government’s calculation and the underpaid labors can spend 52.7% less. This consumption pattern is the exact opposite with that of female labors. Those with overpaid and minimum wage can spend less than the calculation made by government. Interestingly, underpaid female labors spend more than government’s calculation by 53.1%. Table 1. Foods Consumption Pattern (11 Items). SEX MINIMUM WAGE (MW) COMPLIANCE LEVEL WITH GOVERNMENT’S CALCULATION (%) LESS STANDARD MORE MALE OVER 34.5 28.2 37.3 EXACT 68.2 18.2 13.6 UNDER 52.7 41.8 5.5 FEMALE OVER 45.4 18.2 36.4 EXACT 49.5 17.2 33.3 UNDER 33.3 12.1 53.1 Clothing Consumption. For male labors with above MW, 41.5% of their consumptions are below government’s calculation, while 36.9% of the same are as calculated by the government, and only 21.6% above. Male labors with income level of MW, 41% of their consumptions are as calculated by the government, 37.2% is below and 21.8% above. Meanwhile, more than a half of consumption of underpaid male labors is less than calculated by the government, 40% is in line, and only 6.2% of their consumptions are above. Both overpaid and exactly-paid female labors can adjust their consumption as government’s regulation. This is not the case of their underpaid counterparts. 415 Table 2. Clothing Consumption Pattern (13 Items). SEX MINIMUM WAGE COMPLIANCE LEVEL WITH GOVERNMENT’S CALCULATION (%) (MW) LESS STANDARD MORE MALE OVER 41.5 36.9 21.6 EXACT 37.2 41 21.8 UNDER 53.8 40 6.2 FEMALE OVER 25 48.1 26.9 EXACT 28.2 42.7 29.1 UNDER 33.3 19.2 47.5 Housing Consumption. Male labors with income level of more than MW have calculation consumption patterns, figuring at 38.8%. For those at MW, they tend to consume less than government’s calculation, as does the underpaid males. This pattern is almost alike with the female labors. 49% consumption of those overpaid is parallel with the government’s result. The slightly different result is indicated in those with MW, where there are ties between the consumption below the average and consumption as calculated by the government, valuing at 39.6%. The underpaid labors have the same consumption pattern with their male counterparts, i.e. spending less than government’s calculation is dominant (44.7%). Table 3. Housing Consumption Pattern (25 Items). SEX MINIMUM WAGE COMPLIANCE LEVEL WITH GOVERNMENT’S CALCULATION (%) (MW) LESS STANDARD MORE MALE OVER 33.6 38.8 27.6 EXACT 54 32.7 13.3 UNDER 51.2 46.4 2.4 FEMALE OVER 44 49 7 EXACT 39.6 39.6 20.8 UNDER 44.7 21.3 34 Education Consumption. The consumption pattern for male labors with income level exceeding MW is dominantly above the government’s figure (50%). For those with MW, 41.7% of their consumption pattern is in line with the government. No underpaid male labors spend more than government’s stipulation. Their consumption pattern is either below the government’s figure (50%) or at the government’s figure (50%). The overpaid female labors have 62.5% of their consumption to be the government calculation. The other two classes spend more than government’s provision, both 50%. Table 4. Education Consumption Pattern (2 Items). SEX MINIMUM WAGE COMPLIANCE LEVEL WITH GOVERNMENT’S CALCULATION (%) (MW) LESS STANDARD MORE MALE OVER 33.6 38.8 27.6 EXACT 54 32.7 13.3 UNDER 51.2 46.4 2.4 FEMALE OVER 44 49 7 EXACT 39.6 39.6 20.8 UNDER 44.7 21.3 34 Healthcare Consumption. 64% of consumption by overpaid labors is above the government’s calculation, while their female counterparts in the same level spend below. This is reversed for those with MW. Male labors pressed their consumption, 43.3% below the calculation, a bit different with their consumption exceeding government’s limit, at 40%. Meanwhile, their co-workers in the same income level spend 60% of their consumption below the government’s figure. Both underpaid male and female labors spend more than government’s limit. Transportation Consumption. Other than overpaid female labors, all consumption patterns are below the government’s calculation: 80% for overpaid males, 83.5% (exactly-paid males), 80% for underpaid males, 88.9% for exactly-paid females, and 66.6% for underpaid females.
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