Indonesia Inquiry

Indonesian Labor Laws and Policies (Annotated Bibliography)

March 26, 2016 Annotated Bibliographies Data Research Resources 0

Indonesian Labor Laws and Policies (Annotated Bibliography)

Compiled by: Shannay Baradaran

Directed Individual Study, Spring 2016

Texas A&M University-Corpus Christi

Arifianto, Alex. 2006. “The New Indonesian Social Security Law: A Blessing or a Curse for Indonesians?” ASEAN Economic Bulletin (April): 57-74.

The Indonesian Government has recently passed a new national social security law, which supporters have said would make the existing social system works better for the beneficiaries and would extend social security coverage to more workers and their families, both in the formal and informal sector. However, opponents have stated that the new law is flawed in many ways. The paper attempts to critically analyse the law and to predict its possible impacts on Indonesian workers and economy in general. From this analysis, we can conclude that there are several serious flaws in the government plan as outlined in the new law, such as a worsening of Indonesia’s labour market conditions, financial unsustainability, and added pressures on the state budget. Also, it does not allow competition in the provision of social security benefits to Indonesians. A better policy would be to strengthen the family support system, which has been the major source of old-age support for elderly Indonesians. In addition, Indonesia should seriously consider adopting a social security scheme based on the widely used multipillar approach to replace the current public social security monopoly.

Arnold, Wayne. 2004. “In Indonesia, Unions Hit a Roadblock: Contract Labor.” New York Times (May): 1.

Focuses on the replacement of regular employees by contractual labor in Indonesian companies. Use of contractual labor as a response to the emergence of labor unions seeking an increase in employee benefits; Adoption of international labor rights following the overthrow of President Suharto in 1998; Lack of communication between labor forces and management over the issue of corporate restructuring.

Barral, Stephanie. 2014. “Paternalistic Supervision of Labour in Indonesian Plantations: Between Dependence and Autonomy.” Journal of Agrarian Change (April): 240-259.

On large estates, labour control has two dimensions: control of work itself and control of workers’ private lives, including that of their families. Historically, plantation companies have always provided accommodation for their workers, and as a result play a central role in the supervision of the domestic sphere. This paternalistic aspect of labour relations has evolved from being coercive during the indenture system, through a progressive loosening. This paper analyses the history of paternalistic labour relations in Indonesia and Indonesian labour laws. It includes a description of compounds in Indonesian oil palm plantations, where thousands of permanent workers and their families are housed. The compounds are characterized by comprehensive and continuous supervision. Although they generally accept paternalistic labour relations as conferring them with a high degree of security, inhabitants also manage to develop particular ways of negotiating control and asserting autonomy.

Bessell, Sharon. 1999. “The Politics of Child Labour in Indonesia: Global Trends and Domestic Policy.” Pacific Affairs (Fall): 353.

Focuses on legislative and policy responses to child labor in Indonesia. Major trends in international discourse on child labor; Evolution of child labor policy in Indonesia; Child labor laws from 1945-1965; Details on the Ministerial Regulation of 1987.

Cammack, Mark E., and Michael R. Feener. “The Islamic Legal System in Indonesia.” Pacific Rim Law & Policy Journal (January): 13-42.

This chapter describes the historical evolution and current structure of lndonesia’s Islamic legal structure. The current system of Islamic courts in Indonesia is traceable to a late nineteenth century Dutch decree establishing a system of Islamic tribunals on the islands of Java and Madura. The decree created collegial courts in which a district-level religious official called the penghulu acted as chair and was assisted by member judges chosen from the local religious elite. The courts were authorized to decide matrimonial and inheritance disputes, but execution of the courts’ decisions required an executory decree from the civil court. The system was expanded to south Kalimantan in the 1930s, but at the same time the jurisdiction over inheritance was transferred to the civil courts. At independence, the Islamic judiciary was placed under the authority of the Ministry of Religion, which used executive powers to expand the system to other parts of the country. It was not until 1989 with the passage of the Religious Judicature Act that the existence of the courts was guaranteed by statute. The 1989 Act also vested the courts with enforcement powers and mandated changes in the organization and staffing of the courts modeled after the parallel system of civil courts. The substantive jurisdiction of the courts has also been expanded to include inheritance cases as well as a so far little-used power to decide cases involving economic transactions based on Islamic law. In 2004, the administrative supervision of the Islamic judiciary was transferred from the Ministry of Religion to the Supreme Court. In 1999, the province of Aceh was granted special autonomy status that included the authority to enforce Islamic law in areas beyond the established jurisdictions of Shari’a courts in the rest of the country. These developments add a new dimension to the institutional structures for the practice of Islamic law in the country.

Chowdhury, Anis, Iyanatual Islam, Mohammad Zulfan Tadjoeddin. 2009. “Indonesia’s       Employment Challenges: Growth, Structural Change andLabour Market Rigidity.” European Journal of East Asian Studies (June): 31-59.

Indonesia continues to bear the scars of the 1997 financial crisis, with the highest open unemployment rate in Southeast Asia. The orthodox interpretation is that the post-crisis era in Indonesia is typified by overly generous labour legislation that has seen an aggressive pursuit of minimum wages and other provisions. The consequent rise in real wages adversely impacted the investment climate and impeded employment growth in the formal sector. Detailed sectoral analysis reveals very little evidence of a wage-driven cost squeeze on profit margins. Econometric estimation of sectoral employment functions shows that output growth plays a more significant role in determining employment than real wage. This is also confirmed by enterprise surveys which reveal that current labour legislation is not at the top of the list of concerns among investors. Thus, this paper contends that Indonesia’s current labour woes are best understood as the reflection of structural change and a demand-constrained economy. Any employment-creation strategy must therefore consider both demand and cost factors.

Depillis, Lydia. 2013. “Tag Check.” New Republic (May): 10-11.

The article presents information about the labor conditions of workers in the clothing and fashion industries of countries including Honduras, China, Cambodia, and Indonesia. Topics include garment worker wages, labor law violations relating to overtime, worker injuries and accidents, and economic conditions in China.

Henley, David. 2012. “The Agrarian Roots of Industrial Growth: Rural Development in South-East Asia and sub-Saharan Africa.” Development Policy Review (February): 1-23.

There is an influential view that South-East Asia’s economic success is based on export-oriented industrialisation, and that African states should above all imitate this aspect of Asian development strategy. This article, however, uses evidence from Indonesia, Nigeria, Malaysia and Kenya to argue: (i) that the historical roots of South-East Asian economic success actually lie in pro-poor agricultural and rural development; (ii) that even when it has been pro-rural, as in the case of Kenya, African development strategy has not been pro-poor; and (iii) that pro-poor agricultural development, not export-oriented industrialisation, should be the first priority of African states seeking to achieve sustained growth and poverty reduction.

Juliawan, Benny Hari. 2010. “Extracting Labor from its Owner.” Critical Asian Studies (March): 25-52.

The Asian economic crisis in 1997 helped bring down Suharto’s authoritarian regime in 1998. At the same time it paved the way for more measures of economic liberalization. Some of these measures have taken the form of labor market liberalization, which aims to increase the labor market’s ability to adjust to changing economic conditions by clearing what are seen as burdensome regulations, or “rigidities” as they are known in economic parlance. An important instrument in this effort is the private employment agency, which the Manpower Act no. 13/2003 introduced in 2003. This article argues that the introduction of these agencies has created opportunities for various actors in society to take advantage of the less-protected workers in the uncertain waters of the post-Suharto labor regime. In the process, the nature of industrial relations has also been changed in a way that is more predatory than liberal. Ultimately the agencies help erode the hopes for a better life for workers and undermine the revival of labor political rights in Indonesia.

Kis-Katos, Krisztina, and Günther G. Schulze. 2011. “Child Labour in Indonesian Small Industries.” Journal of Development Studies (December): 22.

We analyse the geographic incidence of child labour in small manufacturing firms in Indonesia at the village level. Our unique data set covers virtually all Indonesian villages and urban neighbourhoods; it allows us to distinguish between demand and supply side determinants of child labour. We show by correcting for sample selection that a number of counterintuitive results – child labour being unaffected by credit access and school proximity – are the result of an interplay between supply and demand side determinants. Credit access and school proximity reduce child labour supply, but simultaneously constitute positive location factors for firms thereby increasing the demand for child labourers. To effectively reduce child labour, growth oriented policies, such as enhancing school and credit facilities, should be complemented by policies specifically geared towards increasing school attendance.

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As Table 1 shows, the probability of child labour in a given location rises with the number of small firms; this suggests that the level of economic activity is the driving force behind the demand for child labour. Thus the demand for child labour is affected by all variables that affect the location decisions of firms (and their subsequent growth). Among these variables are the proximity to market, the availability of qualified labour and credit, the quality of infrastructure and the geographic location, which influence accessibility and thus transport costs. Lastly, local purchasing power should matter as well (p. 1892).

Kis-Katos, Krisztina, and Robert Sparrow. 2015. “Poverty, Labor Markets and Trade          Liberalization in Indonesia.” Journal of Development Economics (November): 94-106.

We measure the effects of trade liberalization over the period of 1993–2002 on regional poverty levels in 259 Indonesian districts, and investigate the labor market mechanisms behind these effects. The identification strategy relies on combining information on initial regional labor and product market structure with the exogenous tariff reduction schedule over four three-year periods. We add to the literature on local labor market effects of trade policies by distinguishing between tariffs for output markets and for intermediate inputs, and finding that poverty reduced especially in districts with a greater sector exposure to input tariff liberalization. Among the potential channels behind this effect, we show that low-skilled work participation and middle-skilled wages were more responsive to reductions in import tariffs on intermediate goods than to reductions in import tariffs on final outputs. These results point towards increasing firm competitiveness as a driving factor behind the beneficial poverty effects.

Madani, Psupa, and Tome Wright. 2006. “Indonesia’s Labor Law Deter Investment.” Wall Street Journal- Eastern Edition (December): A.8.

Jakarta, Indonesia — When Jody Dharmawan’s jeans factory faced severe cash-flow problems two years ago, Indonesia’s inflexible labor laws meant he couldn’t afford to lay off enough of his 1,500 employees to keep the business running.

To be sure, Indonesia’s shoemakers are benefiting from diversification away from China. Indonesia’s footwear association forecasts total shoe exports this year will rise 20% from $1.5 billion in 2005, or 150 million pairs of shoes.

“In terms of labor-intensive industry, our competitor is Vietnam, not China,” says C.K. Song, president of the Korean Chamber of Commerce in Jakarta. Factories owned by South Korean and Taiwanese companies account for about 60% of Indonesia’s shoe exports, he estimates. “They [Vietnam] have cheaper labor and a better investment law,” he says.

Mcleod, Ross H. 2003. “The Impact of Globalisation on Growth and Development of the Indonesian Economy.” Ecodate (March): 6-8.

The article discusses economic policies followed by the Indonesian government in relation to globalization and the impact of those policies on Indonesia’s economic performance. In the widest sense, globalization refers to the trend towards increasing interactions of all kinds between different countries. During the year 1960 Indonesian economy was experiencing a severe crisis as a result of political turbulence and poor economic management. It was believed that one of the keys to getting the economy on the road to recovery was to encourage foreigners to come to Indonesia, bringing with them scarce capital in order to establish new productive enterprises. Given Indonesia’s abundance of natural resources, one of the easiest sectors in which to encourage large-scale new investment was mining. Exploitation of mineral resources played an important role in economic recovery of the country. Indonesian policymakers realized that their abundance of low skilled labor could make the country successful exporter of labor. As the import policy regime was liberalized, exports of labor-intensive manufacturing goods flourished. Indonesia has been benefited from the more rapid augmentation of the capital stock that had been made possible by high capital inflow over the years. For this reason, it seems more important to be thinking about what went wrong with Indonesia’s capital account, and about how a recurrence could be prevented or dealt with more effectively, rather than thinking in terms of closing the economy to capital inflow.

Narjoko, Dionisius, and Chandra Tri Putra. 2014. “Industrialization, Globalization, and Labor Market Regime in Indonesia.” Journal of the Asia Pacific Economy (November): 57-76.

This paper examines globalization, industrialization, and labor markets in Indonesia using a case study of manufacturing. It attempts to answer the question of how changes in the labor market after the 1997-1998 Asian Financial Crisis affected industrialization and labor market performance. The paper generates three main findings. First, the responsiveness of output to employment and wages to employment declined substantially over the period 1996-2006 but recovered in 2009. The decline could be a consequence of the implementation of rigid labor laws since 2003. The recovery in 2009 may reflect firms’ adjustment period to the new environment or simply that firms found different opportunities. Second, exporters generally show higher employment elasticity than non-exporters. However, since the implementation of the labor law, exporters tend to retain employment more than non-exporters when wages rise. Third, exporters began substituting labor with machinery as wages started rising. Adapted from the source document.

Rama, Martin. 2001. “The Consequences of Doubling the Miniumum Wage: The Case of Indonesia.” Industrial and Labor Relations Review (July): 864-881.

Indonesian minimum wages were tripled in nominal terms, and doubled in real terms,in the first half of the 1990s. The author analyzes data from the 1993 labor force surveyto evaluate the effects of this hike on wage earnings and wage employment. The results suggest that the minimum wage hike had a modest impact on Indonesian labor market outcomes, increasing average wages by 5-15% and decreasing urban wage employment by 0-5%. The employment effects, however, varied substantially by firm size: small firms apparently experienced substantial decrease in employment, whereas some large firms actually saw their employment increase. Workers in those large firms, the author concludes, are the evident winners from the minimum wage hike.

Setyawati, Dinita. 2013. “Assets or Commodities? Comparing Regulations of Placement and Protection of Migrant Workers in Indonesia and the Philippines.” Austrian Journal of South-East-Asian Studies (December): 264-280.

In labor-abundant countries, migrant workers are considered state assets and the government often calls them the ‘economic heroes’ of the nation. Yet by maximizing economic benefits, the protection of labor migrants is often neglected by both origin and host countries. The state’s assumed presence in protecting its nationals is tied to its capacity to ‘control’ migration flows and protect its nationals abroad. Within this framework, the regulations concerning migrant workers’ protection in Indonesia and the Philippines, which comprise the two largest exporters of migrant labor in South-East Asia, are assessed. This paper compares the two key laws in both countries: Indonesian Law No. 39/2004 and the Philippine Republic Act (RA) No. 10022. In this context, it also aims to answer the following question: Are Filipinos better protected than Indonesians? Looking specifically into the state and the economy, the history of workers’ protection, and key aspects of the law, this paper recognizes several weaknesses of the Indonesian government’s migrant workers protection scheme, especially in the aspects of educating workers and defining the responsibilities of government agencies. Thus, strong commitment from the government, along with close monitoring by civil society, is needed to ensure better protection for citizens.

Sim, Amy, and Vivienne Wee. 2009. “Undocumented Indonesian Workers in Macau.” Critical Asian Studies. (March): 165-188.

Presenting new research findings on undocumented Indonesian migrant workers in Macau, this article explicates the dovetailing arrangements between public and private sector interests that are systemically creating undocumented labor migration flows. It then shows how these arrangements are structurally inherent in the mutual competitiveness of globalizing nodes of wealth creation. Undocumented migration cheapens production costs and results in a flexible black market of vulnerable, right-less, and exploited workers. Contrary to illusions of an urbanizing Asia with expanding spaces for civil liberties, the development of globally competitive megacities, built and supported by low-skilled migrant workers, rests on a global underclass of transient workers who bear the human costs of transience and labor flexibility, enabling megacities to externalize such costs and enhance their global competitiveness. The article analyzes the vulnerabilities of undocumented Indonesian workers in the context of Macau’s rapid economic development as an aspiring megacity The Macau government’s laissez-faire tolerance of such workers is grounded in its need for human labor that is abundant, cheap, marginal, and disposable. The flow of Indonesian migrant workers into Macau is linked to Hong Kong’s exclusionary immigration policies, which aim at extricating surplus migrant labor. Meanwhile, the Indonesian government refuses responsibility for its migrant workers in Macau because Macau is not recognized as an official destination. The article shows how public and private interests motivate increasing numbers of migrants to become undocumented overstayers in Macau, as they try to avoid oppressive practices in labor migration from Indonesia and the exclusionary policies of Hong Kong.

Sindre, Gyda Marås. 2005. “Violence and Democracy: Indonesia’s Parliamentary Puzzle.” University of Oslo (April): 1-89.

In view of extensive democratization and decentralization reforms, Indonesia is still experiencing high levels of violence. Since the fall of the New Order authoritarian regime (1966-1998), violence has been privatized and subcontracted to civilian militia groups attached to political parties, social organizations, and political/financial mafia bosses.

The thesis is concerned with analyzing the puzzling dualism of successful transition in view of conventional democracy theory and the persistence of violence. In order to do this, variables in the conventional transition theory to democracy is juxtaposed to relevant arguments in the discussion on violence in Indonesia: Under what circumstances can decentralization of administration impact on the levels of violence? In view of theories on local elites such as bossism and local despotism when can local democratic institutions enhance the dependency on violence by local elites?

The thesis is divided into three sections. Firstly, it is argued that one has to view violence in Indonesia in view of selective reading of historical trajectories. Violence must be interpreted in relation to (1) changing continuities of local elite relations from the colonial period, and (2) mobilization and organization of crime and violence since the colonial period through mobilization for the battle for independence, the 1965-66 massacres, and the way the New Order regime incorporated and institutionalized these forces into the state apparatus. Secondly, the thesis demonstrates how the current mobilization of violence groups takes place against a backdrop of a kind of institutional democracy in which dominant actors have been able to monopolize the instruments of democracy. Dependency on elected positions to get access to resources has increased the stakes for competitions at the local level. The situation has not, however, led to a kind of Indonesian variety of local bossism which has been the fear amongst many observers. The system of rule in Indonesia is much more fragmented, a point that affects the way the specific manner in which violence is used, and violence groups mobilized and incorporated into a predatory system based on money politics. Violence is further privatized and subcontracted to civilian militias by dominant actors as a means to intimidate opponents as well as displaying symbolic power of mass support and entourage. Thirdly, the thesis demonstrates how the mobilization of civilians into paramilitary groups draws on extensive social forces and a tradition of creating , mobilizing, and incorporating crime as part of politics. It is argued that violence groups, whether as official parts of the structures of political parties, or as affiliated civilian militias (which seems to become increasingly more common) form part of social forces deriving their organizational strength from a long history of civilian violence groups mobilized in relation to various power centers. While these were fostered under the auspices of one patron, Suharto, during the New Order, they are today re-establishing themselves in relation to a fragmented and elusive system of dominance.

The thesis has thus demonstrated that democratic reform as it has been interpreted and implemented along the recipe of generalized conventional transition theory and a type of decentralization informed by the neo-liberal agenda of the World Bank, evades these problematic concepts of local elite rule, and the accompanying mobilization of society into a well organized system of violence groups. In view of historical experience, these trajectories may strengthen despotic rule and eventually lead to an escalation of conflict and violence at the local level.

Tjandraningish, Indrasari. 2013. “State-Sponsored Precarious Work in Indonesia.” American Behavioral Scientist (April): 403-419.

This article discusses labor outsourcing as the main form of precarious work in Indonesia. It is argued that demands for labor flexibility and the expansion of precarious work show that the state’s role in protecting workers is being cast aside as Indonesia’s peripheral position in global capitalism sees the state sponsoring a “labor flexibility regime.” Labor outsourcing was legalized in 2003 with the enactment of Labor Law No. 13/2003. That law came from an agreement between the government and the International Monetary Fund. Labor outsourcing is now widespread and has detrimental effects for workers and unions. Labor outsourcing practices have created a new actor in industrial relations: the labor agency. It has also created a highly complicated and difficult labor relations situation, fragmenting workers by work status and bringing harsh confrontations between labor unions and community members. Labor outsourcing practices have also presented tough challenges for the Indonesian labor movement in developing alternative strategies for organizing.

Törnquist, Olle. 2004. “Labour and Democracy? Reflections on the Indonesian Impasse.” Journal of Contemporary Asia (August): 377-399.

Explores the role of labor in the final ousting of former Indonesian president Suharto. Struggle for democratic rights under Suharto; Effect of capitalism on workers; Role of labor in resisting economic exploitation.

Van Dijk, Michiel, and Martin Bell. 2007. “Rapid Growth with Limited Learning: Industrial Policy and Indonesia’s Pulp and Paper Industry.” Oxford Development Studies (June): 149-169.

This paper contributes to the debate on the role of technical change and industrial policy in Indonesian economic growth using the pulp and paper industry as a case study. The analysis indicates that industry and trade policies had a positive influence on growth and capital accumulation, but gave Indonesian pulp and paper companies few incentives to create or deepen their technological capabilities, resulting in fragmented and limited technology assimilation. The findings also raise questions about common interpretations of total factor productivity growth in Indonesia in terms of inspiration versus perspiration.

Zulbahary, Thauflek. 2013. “Indonesia: The Solidaritas Perempuan’s Experience in Increasing Women Migrant Workers’ Access to SRHR Information and Services.” ARROWS for Change (March): 12-14.

The article discusses the law protecting women migrant workers in Indonesia and the access to sexual and reproductive health and rights (SRHR) information and service. According to the Ministry of Foreign Affair (MoFA), the law is useless in preventing violence and abuse against women. It mentions that Solidaritas Perpempuans (SP) is making their efforts to educate workers on their rights against violence through discussions and programs.