The Complexity of Minimum Labor Wage Policy Impact on The Export-Oriented Garment Business Performance and Its Sustainability: Business-Governance View

Muftiadi Muftiadi; Anang Anang; Rizal Rizal; Muhammad Muhammad; Dharmabumi Hemasari

doi:10.32698/ICRED.0468

The Complexity of Minimum Labor Wage Policy Impact on The Export-Oriented Garment Business Performance and Its Sustainability: Business-Governance View

Muftiadi Muftiadi^(1*), Anang Anang⁽²⁾, Rizal Rizal⁽³⁾, Muhammad Muhammad⁽⁴⁾, Dharmabumi Hemasari⁽⁵⁾

(1) Study Program of Business Administration, Faculty of Social Science and Political Science, Universitas Padjadjaran, Bandung, Indonesia
(2) Study Program of Business Administration, Faculty of Social Science and Political Science, Universitas Padjadjaran, Bandung, Indonesia
(3) Study Program of Business Administration, Faculty of Social Science and Political Science, Universitas Padjadjaran, Bandung, Indonesia
(4) Study Program of Business Administration, Faculty of Social Science and Political Science, Universitas Padjadjaran, Bandung, Indonesia
(5) Study Program of Business Administration, Faculty of Social Science and Political Science, Universitas Padjadjaran, Bandung, Indonesia
(*) Corresponding Author

Abstract

The weakening of Indonesian garment exports is related to the weak competitiveness of products due to rising production costs, especially from the application of minimum wages. Taking a sample of 9 large companies in West Java in the 2016-2019 period, the study was conducted with the business-governance system approach, with pooled data path analysis techniques. The results showed that the increase in the minimum wage every year had a more indirect than direct effect on the company's financial performance (EBITDA) in an persistent manner. Transmission through an increase in labor cost, then affect the cost of goods sold. Structural adjustments are made by companies through cost adjustments, work pattern arrangements, permit of postponement of minimum wages implementation lto the local government and the others that are difficult for businesses to control. Structural changes in the company that are widespread in the industry can cause resources distortion and decreased competitiveness of garment products, thus requiring the resolution of business-governance problems for the sustainability of the industry.