In June 2016 the Workers’ group of the International Labour Organization (ILO) argued that:
“… important progress has been made in the post-Suharto transition period in
protecting freedom of association in Indonesia. Unfortunately, that progress came to
an abrupt end with the advent of the Widodo administration.”
2
The spokesperson for Workers’ group in the ILO also stated that:
“A return to the 1980s style repression was to be feared.”
3
These are serious allegations that warrant careful consideration in any review of recent
industrial relations developments. The Government of Indonesia firmly rejects these claims.
In fact during the same discussion in the ILO a representative on behalf of the Government
reiterated their:
“…. strong commitment to the implementation of the Convention ( on Freedom of
Association and Protection of the Right to Organise), and to the fulfillment of the
rights of workers, including the right to freedom of peaceful assembly and association
in accordance with national laws and regulations.”
4
In all democratic market based economies it is recognized that the relationship between the
individual worker and the owner/management of an enterprise is an unequal relationship. It is
further recognized that formal sector product markets in most countries do not conform to the
textbook model of perfect competition. Oligopoly and monopoly are common features of the
private formal sector in most economies. There are thus both economic efficiency and equity
reasons for having labour laws that recognize and compensate for the power imbalances that
would otherwise exist in the workplace.
A basic component of labour law in all democratic market economies is the right to freedom
of association and the promotion of collective bargaining. The notion that workers should
have a right to join together (associate), in organizations of their choice, to protect and
further their interests vis-a- vis the employer is the bedrock of any democratic and fair
industrial relations system. Moreover, with various checks and balances, freedom of
association also includes the right of workers to strike or to take other peaceful industrial
action to further their interests. There exists a large body of international jurisprudence
concerning the implementation and limits on of these basic rights. The right to freedom of
association is universal, but the protection of these rights can be particularly important in
economies with highly concentrated patterns of capital ownership or societies without a wellestablished
democratic institutions and traditions. This paper focuses on the evolution of industrial relations, labour market policy and wage
developments in Indonesia. This analysis may help to shed light on this important debate
about freedom of association, which is ongoing at both national and international levels,
between the trade union movement and the Government of Indonesia.
In this paper we recall that despite progress in the post-Suharto era, labour relations remained
far from satisfactory in the decade-and-a-half prior to the election of President Widodo.
Indeed the ILO supervisory system has been investigating claims of violence at the
workplace perpetrated by criminal gangs hired by employers, workers and union activists as
well as some State authorities since 2011. We conclude therefore that the industrial relations
environment requires urgent remedial action. The elimination of violence plus fundamental
changes in practices and attitudes are required on all sides.
Assessments about the state of industrial relations are subjective and open to different
interpretations. Consequently, in this paper we argue for a pragmatic way forward rather than
just raking over past mistakes and current problems. While it is impossible to ignore what has
happened in recent years the focus should be on restoring social dialogue and promoting
consensus. In fact we argue that with some modifications to recent wage reforms, and
significant changes to way strikes and demonstrations are handled, Indonesia can regain a
positive international image for labour relations and fundamental labour rights. Moreover, we
make the case for expanding labour reforms into a number of additional areas and doing so
on the basis of genuine social dialogue.
Section 2 of the paper sets the scene. It focuses on very recent economic and labour relations
developments. The latter includes discussions and conclusions on Indonesia by the ILO
supervisory system on International Labour Standards in 2016. Section 3 steps back from
these recent developments and reviews the long term evolution of labour laws, labour
institutions and industrial relations practices in Indonesia over the last half century. This
history is critical to understanding why any suggestion that Indonesia may be reverting to the
practices and policies of a previous era will capture international attention.
Section 4 is devoted to the wage reforms announced on 15 October 2015 and their
repercussions. It considers the likely impact of the reforms on labour costs and the balance of
power at the workplace. Section 5 focuses on a number of other labour market issues and
potential reforms that are relevant today. These include: the future of wages policy; collective
bargaining; labour inspection and the enforcement of minimum wages and labour laws;
employment protection legislation including severance payments and regulations governing
dismissal; the expansion of non-standard forms of work including the use of fixed term
contracts, workers hired through employment agencies and other triangular employment
relationships plus the outsourcing of work to homeworkers and others who are misclassified
as independent contractors when they are actually in a dependent employment relationship;
and finally, skills and human capital development.
This lengthy list of labour market issues have been debated since the early 2000s in Indonesia
and many proposals for reforms have been advanced in the last decade-and-a-half. But up
until now labour market reforms have remained a highly contentious area of policy. At various times labour reforms have often been pursued in a piece meal manner and they have
either been subsequently withdrawn or have engendered massive protests.
Section 6 concludes and advocates a balanced package of reforms that cover all the policy
areas mention above. In so doing care has been taken to propose a combination of changes
that if implemented simultaneously should advance both equity and economic efficiency. The
objective is to promote compromise and sufficient tripartite consensus to make the reforms
politically realistic and enduring. If this consensual approach was adopted it would eliminate
the type of accusations mentioned at the outset of this paper.