[av_dropcaps1]O[/av_dropcaps1]n Jan. 29, 2007, The Jakarta Post editorialized about labor and business. The editorialist identified the core issue as insufficiently flexible labor regulations that disadvantage the investment climate in Indonesia.
In fact, labor flexibility has already been incorporated into the 2003 Labor Law. Problems have arisen because some interested parties consider that flexibility to be insufficient, so they proposed further revisions.
The proposed changes included, among other things, the removal of state protections for workers and the opening up of competition between domestic and foreign workers. Workers strongly rejected the proposed revisions because they threatened to deteriorate working conditions and welfare. The proposed changes also violated the principles of decent work stipulated by the International Labor Organization.
The basic aim of flexibility is to stimulate corporate competitiveness. One key way to accomplish this is to weaken or remove regulations that protect workers and replace them with more liberal ones that ease the recruitment and dismissal process. What this leads to is greater worker vulnerability. Wages and overtime opportunities get cut, and jobs get changed from permanent to temporary. Since the 2003 law came into effect, there has been a massive move by employers to change permanent positions into contract labor. This trend has occurred particularly in the large, labor-intensive industries that produce garments, footwear, electronics and food.
The outsourcing system regulated by the Labor Law provides a legal basis for companies to replace permanent workers with contract labor. The problem is that employers do not follow the procedures. Companies close down without fulfilling the requirements, leaving thousands of workers laid off without their rights. The companies that close down then reopen somewhere else and recruit both former workers and new workers into contract positions. As contract workers who are signed up by a labor recruiting company — many of which have been established in industrial centers and become lucrative businesses — workers receive only a basic wage, equal to the regional minimum wage without any other allowances, even though they do precisely the same tasks as permanent workers. Their work contracts are generally very short, ranging from one to six months, and can be ended at any time.
These short-term contracts create uncertainty in employment and even more so in career advancement. These workers also lose the opportunity to form unions because, both implicitly and explicitly, the recruiting company and the hiring company threaten their jobs if they unionize. The labor outsourcing system has also given rise to abuses by employment agencies. It has become common for a person who is looking for work to pay a sum of money, on top of the standard service fee, to the agency. The worker’s bargaining position with the recruiter is very weak because he or she can easily be replaced by another person.
Insufficient law enforcement has also put workers at a disadvantage. This highlights the state’s weakness in the face of capitalists. Since the government is desperate to overcome 11 percent unemployment, “anything goes” when it comes to job creation, even to the point of putting aside the protection of laborers as the main agenda. This situation is reminiscent of the 1980s, when foreign investment was wooed to set up labor-intensive manufacturing industries with various incentives and a high level of state tolerance toward the infringement of workers’ rights.
Deterioration in workers’ welfare is in reality a threat to investment, because low welfare among workers hurts their purchasing power. That, in turn, means the markets for industrial products cannot expand. This whole situation explains why there has been such a strong reaction against making labor regulations more flexible. While a number of other Asian and European countries have adopted flexible labor policies, these are tightly overseen by the state with keen attention to the welfare of workers. These countries have also balanced the application of labor market flexibility with adequate social security measures to support people’s welfare.
The challenge for the Indonesian government is to help all of its people fairly, without sacrificing any one group. It is not too late to reconsider and restructure the system so that a flexible labor market will bring benefits to all concerned. A friendly investment climate can be created in ways that do not put workers at a disadvantage. This will make it easier for the government to regain workers’ trust, which it is increasingly depleting.
The writer is researcher at the AKATIGA-Center for Social Analysis, Bandung. She can be reached at firstname.lastname@example.org