Job Creation Law and Available Options

KOMPAS/PANDU WIYOGA

A number of workers left the factory area on their way home from work at the Batamindo Industrial Estate, Batam, Riau Islands, Tuesday (22/9/2020).

Workers were stunned when the “cluster” of labor provisions in the job creation bill were passed, which is perceived to make their lives even harder.

Only last month had they admired the President’s pro-labor policies that provided wage subsidies to 15 million workers through the Workers Social Security Agency (BPJS Ketenagakerjaan), the preemployment assistance scheme, and capital assistance for micro, small and medium enterprises (MSMEs). Several international observers even praised Indonesia’s determination to pursue the path of a welfare state amid the pandemic.

The group that has been left disappointed is the labor union that demonstrated goodwill from the beginning to take part in negotiations with the government and the House of Representatives (DPR) to give its input, while other unions refused to join in the discussions. For 10 days, they negotiated to formulate a working paper to complement the seven most critical articles in the bill. It turned out that the approach of deliberative democracy (for consultation and consensus) ended in procedural democracy, involving mere consultation at the legislature and did not accommodate any of the feedback from the labor union.

Also read: “Omnibus Law”, Between Labor and Productivity

If only half of the workers’ demands had been granted, their reaction may have been different. This time, the workers’ opinion has become uniform, with their announcement to resist the newly approved bill by submitting a request for judicial review at the Constitutional Court (MK) and to hold mass labor protests with other elements of society. At the office of the International Trade Union Confederation (ITUC), general secretary Sharon Burrow issued a statement to denounce the Job Creation Law, because it could threaten Indonesia’s commitment to the Sustainable Development Goals (SDGs), create greater potential for environmental destruction and decrease workers’ welfare. The ITUC has called for “constructive discussions the trade unions of Indonesia unions on any changes to labor provisions”.

Also read: Pros and Cons Continue on Omnibus Law

In its elucidation, the government points out that the Job Creation Law will promote new investments, cut red tape and reduce the potential for corruption, as well as protect small and medium enterprises (SMEs) that will later support the 7 million workers who are currently jobless plus the 2.9 million people who have entered the workforce and the 6 million workers who have been laid off due to Covid-19.

People’s sovereignty vs. markets

On many occasions in many countries, the passing of a new manpower law generally does not please workers, because tight business competition has forced their governments to introduce restructuring measures to maintain competitiveness to attract investors. The world we live in today is not the same as the world of the past, with the partial erosion of age-old conventions in response to market pressures. The problem is that not everyone is prepared to accept the new, harmful reality, and not all governments have the time to offer good explanations. All the focus is on achieving targets towards improving global indexes and indicators.

This is why developing countries like Indonesia are facing a big dilemma in responding to globalization. In the global order, developing nations are positioned to accept global rules or agreements, even if they are sometimes opposed to their domestic commitments. With the increasing dependence on globalization, these countries are required to make domestic adjustments to match global laws, regulations and markets in order to enjoy the benefits of globalization.

So, the rules of the game are: open borders, open markets, withdraw protections, increase facilitation of foreign investors and reduce “labor costs”. Looking at the annual indicators of global competitiveness of the World Economic Forum (WEF), none directly relate to workers’ welfare. The WEF’s 12 indicators, or pillars, are: institution, infrastructure, macroeconomic environment, health and basic education, higher education and skills, product market efficiency, labor market efficiency, financial system development, technology adoption, market size, business dynamism, and innovation capability (WEF, “Global Competitiveness Report”).

Also read: A Labor Day Full of Anxiety

Developing countries score poorly in nearly all these indicators, but on the other hand, advanced countries fulfill these indicators so that they always score high, especially the member states of the Organization for Economic Cooperation and Development (OECD). Meanwhile, investors will always choose to invest in countries with high competitiveness (high scores). Other investors go to developing countries, but only for investments that have to do with natural resources exploitation, or to enter countries with low wages, as well as poor environmental regulations and low taxes.

This is what Dani Rodrik (2011) calls the “fundamental” political trilemma of the world economy. Rodrik notes that in global economic integration, countries cannot simultaneously promote democracy and their national interests. If greater advantages are to be gained from globalization, countries have to allow globalization to regulate part of their sovereignty and democracy. The available choices are thus either to strengthen democracy at the risk of not enjoying the full advantages of globalization or to deepen their involvement in globalization by following democratic rules that often do not align with the spirit of the state’s constitution. This is what has been dubbed the “globalization paradox”. Democracy guarantees the right to protect people’s interests and when this right comes into conflict with the need for globalization, countries like Indonesia face a dilemma between its desire to follow globalization and to execute the mandates of democracy.

AP PHOTO/BINSAR BAKKARA

Protesters hurl debris at police during a rally against a controversial bill on job creation in Medan, North Sumatra, Indonesia, Thursday, Oct. 8, 2020. Thousands of enraged students and workers staged rallies across Indonesia on Thursday in opposition to the new law they say will cripple labor rights and harm the environment.

The remaining opportunities

Now let us examine the opportunities that still remain for workers after the bill was passed. Labor unions expressing their opposition to the bill by petitioning the Constitutional Court is one option to accommodate the workers’ seven demands. Hopefully, the court’s decision will be fair to workers. Apart from this, several opportunities actually still remain as regards the seven labor demands.

The first demand concerns the loss of regional minimum wage. This can still be addressed when employers formulate their salary scales, as indicated in the Job Creation Law. Alternatively, it can be regulated when the Collective Labor Agreement (PKB) is being prepared. Workers employed in leading sectors will receive additional renumeration as calculated based on the company’s profits. The resulting figure may not be exactly the same, but at least there is a chance that can be used.

Also read: Keeping a Close Eye on Unemployment

The second demand concerns the reduced severance pay from 32 times the annual salary to 25 times the annual salary. In fact, if this change is actually implemented, it will better than the old provision on severance pay in Manpower Law No. 13/2003. Although the law obligates severance pay of 32 times the salary, only a handful of workers have ever received severance, and many others have even received no severance at all. Severance pay generally ends in a consensual agreement between employer and employee because nearly all companies do not set aside funds in their books for paying severance to workers who are dismissed. Labor unions need to demand that a provision that requires all companies to set aside reserve funds for severance should be included in a government regulation or a manpower ministerial regulation.

The third demand concerns contract workers who are retained for an excessively long term. To avoid this, labor unions should ascertain that the implementing regulations contain a concrete sanction that prohibits companies from entering into work contracts in their core business activities.

KOMPAS/ANGGER PUTRANTO

Workers put the finishing touches on a railroad factory to be operated by PT Stadler INKA Indonesia in Kalipuro, Banyuwangi, East Java, Tuesday (4/8/2020). The factory, which is targeted to start production in late 2021 or early 2022, has a production capacity of 500 cars (wagons) per year.

The fourth demand concerns unrestricted outsourcing to cover all business activities. Law No. 13/2003 restricts outsourced workers to operations that are not directly related to production. This provision can be rectified in the PKB or in other derivative regulations, including referring the decision to the Constitutional Court.

The fifth demand concerns the use of foreign workers (TKA) who do not have permission to work legally in the country. This is clearly prohibited in the Job Creation Law. TKA are only for emergencies, vocational purposes, employees at startups and business visits. To prevent any deviations the Manpower Ministry, in a derivative regulation, requires companies to seek consultation with labor unions on the use of TKA if a certain quota is exceeded or if the work term is more than three months.

Also read : Recession and New Civilization

The sixth demand concerns a provision in the job creation omnibus law that allows time rate system pay to provide the basis for hourly wages. This provision is not much of a cause for concern, because it only applies to specific jobs. There is also still room to regulate it in the derivative regulations. Calculating wages using a time-based system is common in many countries for specific jobs, like workers at restaurants, exhibitions, tourist guides and interpreters. They usually receive pay that is higher than minimum wage.

The seventh demand pertains to provisions in the Job Creation Law that permits companies to dismiss employees for reasons of efficiency or absenteeism. In fact, the Constitutional Court has decided that “reason of efficiency” applies only if companies close permanently. In this, efforts should be made to fight for enforcing the court’s decision.

KOMPAS/ADITYA DIVERANTA

A number of workers on Jalan Haji Agus Salim, Central Jakarta, left the office during lunch break on Wednesday (22/7/2020). During the Covid-19 Pandemic, some of them were nervous about the emergence of a contagion cluster in the office area.

As for workers’ fears over their potential loss of social security and pension funds, as they can be placed on lifelong contracts, this threat is not entirely real because Law No. 24/2011 on the BPJS stipulates clearly that employers must register all employees with the BPJS, and also carries stipulations on sanctions.

Strengthening social security

Hopefully, these derivative regulations will display the humanitarian side, rather than just business-friendly purposes

The addition of the social security program as part of the Employment Loss Guarantee (JKP), along with the additional benefits of professional training and certification, cash assistance and job placement facilities, will be extremely useful for workers who have lost their jobs. The JPK is another term for the unemployment scheme, which is one of the nine basic protections that social security offers but has not yet been implemented in Indonesia, pursuant to the mandates of ILO Convention No. 102. The model and the amount of the social security contributions can be adjusted to reflect the practices in other countries. Some collect contributions only from the government, but contributions generally come from three parties (government, employers, employees). The new law also contains an additional benefit for workers called “other appreciations”. This should be appreciated and can be used to make up for the loss of the benefits stipulated in previous regulations.

One of the vital strategies for facing the variety of economic uncertainties is to strengthen the role of social security. It has been proven that a strong social security system can be an “automatic stabilizer” when the state experiences an economic crisis. Indonesia should promptly settle inconsistencies in its social security policies, expand its still narrow coverage, and put an end to the embezzlement of social security contributions. In line with this, labor unions should urge the government to implement social protection for vulnerable workers under the Contribution Assistance Recipients (PBI) scheme as required by the BPJS Law.

Kompas

Rekson Silaban

A scheme that combines the JPK and the PBI for vulnerable workers could also provide additional protection for contract and outsourced workers, whose recruitment is likely to grow following the passing of the Job Creation Law. It is stipulated in Article 185 of the Closing Provisions that, “a government regulation and presidential regulation shall be issued no later than three months”. This means that over the next three months, the government must attend to substantial housework to publish the various implementing regulations for this law. Hopefully, these derivative regulations will display the humanitarian side, rather than just business-friendly purposes

Rekson Silaban, Analyst, Indonesia Labor Institute.