T

he World Bank (WB) has lashed out over the government'€™s rigid labor policies, describing Indonesia as an '€œactivist'€ country that is unaware it is '€œmoving in the wrong direction'€.

Stringent labor laws put a country and its citizens at a disadvantage, as they reduce job opportunities for the economy in general, in particular for women, the youth and low-skilled workers, according to East Asia Pacific At Work: Employment, Enterprise and Well-being, a regional report written by the US-based organization.

In his presentation during the report'€™s release in Jakarta on Thursday, WB lead economist Truman Packard said that governments in East Asia-Pacific were becoming '€œmore activist'€ by imposing stricter labor laws on businesses, with policymakers apparently failing to realize that '€œthey are moving in the wrong direction'€.

'€œIn East Asia, employment-protection legislation is most restrictive in Indonesia, where workers whose employment is regulated by the labor code enjoy more protection than workers in France, Greece or Portugal and only a little less than workers in Spain,'€ the US-based organization wrote in its report.

Moreover, the Indonesian government'€™s move to introduce higher minimum wages might backfire, the WB warned.

The report said that every 10 percent increase in the minimum wage in Indonesia would lead to a 0.6-0.7 percent decline in female employment in small firms.

Higher minimum wages, a policy that was initially intended to bring greater prosperity to local workers, is normally associated with an increase in informal employment, according to the WB.

At least 70 million Indonesians, or 59 percent of the total workforce, are now still employed in the informal sector, according to data from the Central Statistics Agency (BPS) released this week.

'€œPeople working informally are more vulnerable to shocks, such as loss of unemployment,'€ said Axel van Trotsenburg, WB vice president for East Asia and the Pacific. Current policies implemented by the Indonesian government did not help solve the issue, he added.

For policy recommendations, governments should implement modest, nationally financed unemployment packages that could help employers avoid costly severance schemes, such as the universal healthcare policy recently implemented in Thailand. Such policies could lower labor taxes and encourage business to become formal, the WB noted.

Indonesia has seen its competitiveness dwindle due to rising labor costs nationwide, after many regional leaders, fearing a political backlash ahead of the 2014 elections, decided to bow to workers'€™ demands for higher wages.

In the capital, Jakarta Governor Joko '€œJokowi'€ Widodo increased the minimum wage by 11 percent to Rp 2.4 million for this year, following a 42 percent increase last year.

Meanwhile, during a seminar on business process transformation, which was jointly organized by The Jakarta Post and consulting company Accenture in Jakarta Thursday, Accenture Indonesia country managing director Neneng Goenadi said the government had to change the way of thinking when handling workers in the country.

'€œThe government has to focus more on how to improve workers'€™ skills, not only feed them with money by increasing their minimum wage,'€ she said. She expressed concern about the government because, to date, it only attempted to solve the problem by increasing the minimum wage. '€œIf we talk about money, the sky is the limit,'€ she added.

The Indonesian Employers Association (Apindo) chairman Sofjan Wanandi said that employers were worried about conditions in Indonesia because 100 million people lived on US$2 per day and 37 million people lived on $1 per day, yet there were no workable solutions to the poverty and unemployment problems.

'€œIndonesia needs skilled workers, which it lacks. Although education accounts for 20 percent of the state budget, mismatches often occur between the needs of employers'€™ and the skills of workers,'€ he said. (ask)