• Normal round of minimum wage negotiations

• Quite forceful and very disruptive strike actions over

pay claims

– force a backdown by employers and local governments in

the wage negotiations

– Toll road in West and East of Jakarta blocked Dec-January

• Ratification of quite high minimum wage increases

by recent Indonesian and international standards

– Across the Jakarta region (23%)

– Key role of mayors/bupatis in the regions (Bekasi, Serang)

1

Introduction: The Events of December - February 2011-2

Introduction: The events of Dec - Feb 2011-2

3

• Actions and threatened actions in Bekasi and Tangerang, and

follow the same pattern:

1. Tripartite negotiations recommend moderate annual

wage increases (around 10% - greater than the CPI)

2. Local unions protest and governor/mayor ratifies wage

increases above tripartite decision

3. Apindo takes matter to local courts and gets decision

overturned

4. Unions take to the streets, or threaten action

5. Apindo backs down, unions win, earlier decision stands

Introduction: questions

Questions

• Why 2011-12

– Period of low inflation

– Unemployment come down (females, youth),

poverty rate also down

– Period of relative labour quiet

• Were there similarities with earlier episodes

of labour unrest? What changed in 2011

4

Introduction

• Well, I have a „bob each way‟ – ada yg.

khusus dan ada yg. lebih struktural

– there have been some special factors

– but there are also some deeper factors that

contribute to unrest and disruption from

time to time

5

6

Introduction: Outline of the Talk

1. Background to these events: labor reforms and earlier

episodes of labor action

2. Legacy of crisis and the labor law: weak employment

3. Some other factors in 2011-12

4. Institutional weaknesses below the surface

5. Implications for the short and medium term

1. Background

The Soeharto period and the crisis

• Minimum wage policy: increasingly pro-active policy

in the 1990s from Jakarta

– Seek to gain worker support (criticism of „low‟ wages in

export policy)

• Tight controls over the union movement and labour

repression

– Single union policy (SPSI), though challenged by Mochtar

Pakpahan

– settlement of labour disputes through extra-legal processes

• the Marsinah case in 1993

• The crisis: sharp fall in real wages during hyper-

inflation7

8

1. Background

Institutional change and industrial conflict post AFC

• Minimum wages decision turned over to the kabupaten and

propinsi

– Becomes an issue in local elections (eg. Jakarta 2002)

• Union leaders become Ministers: pro-labour stance

– Wage hikes in Jabotabek region (background of sharp fall 1998-9)

– Kepmen 150 (2000) mandates substantial rise in severance pay

• overturned by the Minister in response to employer pressure

• reinstated following violent actions in Bandung (Gedung Sate)

• Court decision in favour of Apindo in 2002

– Subsequently overturned due to union threat of action

9

1. Background

• Labor Law of 2003 (Law 13 – the “unlucky” law)

– Labor law brings together disparate collection

decisions/regulations and adds some new items

– Quite long period of negotiation 2000-03

– Key articles hotly contested by the employers and the

unions

• Employers on the severance pay

• Unions on contract employment and outsourcing and

severance pay

0

5

10

15

20

25

30

<One yr. of service

Three years Five years Ten years Twenty years Maximum

1986

1996

2003

Months of Severance Pay for Dismissed of Workers,

Economic Cause, Indonesia 1986,1996, 2003

1. Background

Further disputes 2005-6

• March-May 2006 substantial industrial unrest over plans to revise the Manpower Law (13/2003)

• Why reform?

– Concerns over the investment climate

– Modern sector employment slow, rising unemployment (World Bank prominent)

• What issues:

– criteria for setting Min. wages (KHL)

– severance pay, short-term contracts and outsourcing

– Indonesia compare badly with most East Asian countries (esp. severance pay)

12

0.00

4.00

8.00

12.00

16.00

2001 2004 2007 2010

%

Axis Title

Female

Male

Total

Source: National Labour Force Survey (SAKERNAS) 2001-2010

Unemployment Rates by Gender, Indonesia, 2001-2010

(%)

Severance Regulations in Asia

0

2

4

6

8

10

India Malaysia Philippines Singapore Thailand Indonesia

Severance pay in no. of monthly wages

A worker with 4-years experience at the firm

and dismissed for economic reasons

Source: GIAT-UNPAD (2004)

Hiring Firing Rigidity Average

Difficulty Cost Difficulty Cost Hours Employment Index

Index % of Index Weeks Index Index (0-100)

(0-100) salary (0-100) of salary (0-100) (0-100)

More restrictive (average index >50)

India 56 12 90 79 40 62 62

Cambodia 67 0 30 39 80 59 59

Indonesia 61 10 70 145 40 57 57

Brazil 67 27 20 165 80 56 56

Vietnam 44 17 70 98 40 51 51

Less Restrictive (average index <50)

Philippines 56 9 40 90 40 45 45

Korea 44 17 30 90 60 45 45

China 11 30 40 90 40 30 30

Chile 33 3 20 51 20 24 24

Thailand 33 5 0 47 20 18 18

Malaysia 0 13 10 65 20 10 10

Sinapore 0 13 0 4 0 0 4

1 Average of the four indices: hiring, firing, rigidity in hours and employment.

Indices of Employment Flexibility and Hiring and Firing Costs,

Selected Developing and East Asian Countries, 2005

1. Background

Disputes 2005-6

• SBY caves in to pressure in April 2006, why, and why so soon?– Poorly prepared case

– No cohesive government strategy, beyond efforts of Manpower Minister

– No key union leaders in support of reforms - feeling that reforms were for business

– Four major confederations competing for members –no single voice representing unions

16

2. Labor market after the Labor Law: sections

depressed and more dualistic

• Wages did not get out of hand after the labour law; rise

with cost of living 2003-2010

• Formal sector employment slow (even though

unemployment fell)

– casual and contract work proliferate

– Severance pay regulations on factor?

• Regular wages stagnate, then recover slightly

• Minimum wages close to the average : holding real wages

up

17

-4

-2

0

2

4

6

8

10

12

GDP Jobs GDP Jobs GDP Jobs

1990-96 2001-05 2005-10

Agriculture

Manufacturing

Services

Total

Growth Rates in GDP and Employment by Major Sector

Indonesia, 1990-2010 (% p.a.)

18

-5.0

0.0

5.0

10.0

15.0

20.0

Agriculture Non-Agric. Total Agriculture Non-Agric. Total

2001-05 2005-09

Gro

wth

ra

tes

(%

p.a

.)

Informal

Formal

Casual

Total

Growth Rates in Employment by Employment Status in

Agriculture and Non-Agriculture, Indonesia 2001-2005, 2005-2010

3. Other special factors in 2011-12

• Mainly political factors

– Second round of district/provincial elections:

minimum wages on the agenda

– Economic reform-minded ministers less influential

• Other factors

– Successful, huge, Freeport wage claim (Papua) in

favour of workers late 2011

– The constitutional court (MK) ruling on conditions of

work in outsourcing and short-term contracts Jan

2012

– Booming economies outside Java: Batam conflicts19

20

4. Deeper Institutional Weaknesses

• Despite union freedoms to bargain collectively most

standards set rigidly by the government

– Little place for enterprise collective bargaining

• „Tripartite‟ forums not work well

– Government partner (Manpower Ministry) interventionist and

tending to be populist

• Revised procedures for estimating cost of living: handed over to

the „tripartite‟ partners in 2005

– Economics Ministers interested in other matters: labor regarded

as a „social‟ issue

– Unions divided: four competing federations, each outbid each

other

– Employers, a touch of arrogance, and not enough attention to

the details

21

• A shock effect “out of left field” when Indonesia the flavor

of the month/year (Economist article in mid Feb.)

• This event alone unlikely to deter investors (despite the

various complaints of foreign chambers).

– but prolonged disputes and institutional weakness likely

to continue to hinder modern sector employment growth

• More scientific basis for cost of living calculations will help

• But will need serious government consideration to turn the

situation around in longer term

• (eg. Like Chile, other East Asian competitors)

5. Implications

22

Thank You

Terima Kasih

Matur Nuwun