Ridwan Max Sijabat, Jakarta – It is pretty easy to imagine what will happen to workers and their families if the House of Representatives and the government endorse amendments to the 2003 Labor Law allowing companies to outsource not only additional and/or temporary work, but also their core businesses, and to recruit contract-based employees.
Workers will be paid less and they will likely lose most of the benefits they currently enjoy under the unamended law, including meal and transportation allowances and social security programs. Remuneration will be determined not by the companies that actually employ workers, but by the companies that recruit them.
Professionals will compete with expatriates for the highest pay, skilled workers will seek jobs that provide compensation in line with their skills, while unskilled workers, who make up the majority of the country's workforce, will have absolutely no bargaining power.
Contract workers will no doubt see their rights and benefits disappear, under contracts written up by employers who will naturally look after their own interests first. Besides receiving no bonuses, allowances for transportation, leave or health, or vacation, workers are likely to be denied raises and will have nowhere to turn in demanding improvements in their working conditions.
Employers will hold all the power over contract workers, being able simply to decide not to extend the contracts for any reason.
The current law allows employers to outsource only a part of their work to other companies, while the core business must be done by permanent workers. It also allows employers to extend labor contracts twice, with the hope that contract workers will eventually be promoted to permanent staff.
The government and the Indonesian Employers Association have proposed about 50 changes to the employment system in what they call an attempt to repair the investment climate in the country and attract more foreign investment.
Other proposed changes include the elimination of service payments and a maximum limit on severance pay for dismissed workers of three months' salary. Currently, employers pay a maximum of 14 months' salary and severance payments for fired workers.
If the Labor Law is amended, fired workers and their families will be powerless. The issue of severance pay has been one of the most contentious during deliberations of the proposed amendments by the House and the government, pitting labor unions against employers. Labor unions so far seem to have the support of the legislature in blocking any amendments that would make it too easy for employers to dismiss workers.
The proposed amendments would certainly make it easier for investors to do business here, but in the end the changes could be counterproductive.
Outsourcing could affect worker productivity and loyalty. Poor working conditions will discourage workers from doing their best to help the companies employing them. Employees will have no loyalty because they will have "two masters" – their recruiters and their employers.
The proposed revisions to the law will also affect the industrial relations system, which now sees employers and workers as partners. There will also be no room for the two sides to reach collective labor agreements where they establish their own rights and obligations.
Making matters worse, labor unions and analysts are skeptical the proposed amendments can improve the investment climate and smooth the way for foreign investors entering Indonesia. They have warned of social and political instability if the 27 million workers employed in the formal sector take to the streets to oppose the amendments, as some 3,000 steel workers did recently.
Critics say the government remains ignorant of the true problems discouraging foreign investment here. They say the government should take a close look at the way it has treated potential investors, and evaluate the security situation in the country over the last seven years.
Complicated bureaucratic procedures have made it costly and time consuming for investors to obtain the necessary documents to set up companies. Corruption and double taxation by the central and regional governments of foreign investors further burden businesses, adding to their production costs. And a lack of legal certainty frightens off investors from expanding their businesses in the country.
Of course, deregulation is necessary. The law must absolutely be enforced and security must be ensured for the sake of certainty for investors. Clean governance and security guarantees are two of the main conditions for making investors feel at home.
Indonesia should learn from China, which has successfully deregulated industry, maintained security and repaired its infrastructure to attract foreign investors.
[The author is a staff writer at The Jakarta Post.]