The Jakarta Post
A free-wheeling labor market would never work in the interest of workers, given the unequal status of employers and employees, and because in the bread and butter terms of jobs and wages, the interests of employers and workers often oppose each other.
Hence, laws and regulations are needed to provide workers with strong bargaining power, and the government guarantees the freedom of workers to set up organizations or trade unions. However, overly protective labor legislation could kill the goose that lays the golden egg.
Workers stand to lose the most if the law and rules are too punitive for companies as this would further dampen the demand for workers in the already glutted labor market, with almost 8 million unemployed, more than 40 million underemployed and an annual addition of 2.5 million new job seekers.
Both domestic and foreign companies have long complained that a number of rules stipulated in the 2003 Labor Law, especially those on severance allowances, are too rigid and have become one of the biggest barriers to new investment in the country. The tough labor rules have made the country less competitive than ASEAN neighbors in attracting new investment to labor-intensive industries.
The law, enacted amid the euphoria of workers’ newfound freedom of association and expression, seemed to swing the pendulum too far from repressive labor policies under Soeharto’s authoritarian rule to the overprotection of workers.
For example, the 2003 law requires employers to give severance compensation and service benefits amounting to up to 17 months of salaries, depending on the years of employment, to workers who are dismissed. Even employees who are detained by the police as criminal suspects are entitled to living allowances for their families, ranging from 25 to 50 percent of the monthly salary for up to six months.
Such tough labor rules have certainly discouraged investment in labor-intensive businesses and often force many companies to hire temporary workers to circumvent the regulations. It is no wonder then that almost 70 percent of the labor force has been pushed to work in the informal economy.
President Joko “Jokowi” Widodo has since 2015 tried to provide a middle way, striking a good balance between the objectives of spurring new investment to create jobs and protecting basic worker rights as well as ensuring strong worker welfare, as much as possible with Indonesia’s current conditions. However, strong opposition from trade unions make the law amendments almost politically impossible.
The experiences of other countries in the region show that easing overly strict labor regulations, ensuring severance payments are not too onerous and establishing a minimum wage that is not too high compared to the average wage are all associated with improved employment and participation for new job seekers.
What is needed are labor rules that guarantee minimum standards for decent working conditions, workers’ right to strike and severance and compensation payments. All of this should be enforceable amid steadily changing economic conditions and technological advancements that have radically transformed the labor market.