Mass Employment Layoffs Feared to Persist

KOMPAS/WISNU WIDIANTORO

From the right, Apindo Head of Trade Benny Sutrisno, Apindo Chair Anton Supit, Deputy General Chair of Apindo Suryadi Sasmita, Shinta Kamdani, Chair of Apindo Wages Aloysius Budi, and Chair of the Apindo Regulatory Committee Myra Hanartani attending a discussion at the Kompas Editorial Office, Jakarta, Tuesday ( 13/12/2022). This discussion discussed various aspects of wages and employment in Indonesia.

JAKARTA, KOMPAS — Mass severance of layoffs in the export-oriented, mass labor-absorbing manufacturing industry is expected to continue in 2023 due to weakened demands from overseas markets amidst economic uncertainty.

Citing reports from the Financial Services Authority (OJK), the National Social Security Council, the Manpower Ministry and the Indonesian Employers' Association (Apindo) said the disbursement for the January-October 2022 pension savings (JHT) program amounted to Rp 36.52 trillion covering a total of 2.8 work discontinuation cases. Of this figure, 834,037 were layoff cases with compensation disbursement amounting to Rp 8.57 trillion.

Apindo deputies Suryadi Sasmita and Shinta W Kamdani talked about the issue in a discussion hosted by Kompas at the daily’s editorial office in Jakarta on Tuesday (13/12/2022). Several businessmen were also present.

Apindo trade division head Benny Soetrisno said a decline in export demand hit manufacturing companies, including those in textiles, footwear, furniture and rubber processing.

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Demand for furniture products, which would usually go up toward the end of the year, is now declining. Benny pointed to some exporters complaining about the cancellation of orders from overseas clients because large stocks were still in storage.

As of Nov. 21, 163 member companies of the Indonesian Textile Association (API), the Indonesian Footwear Association (Aprisindo), the Korean Garment Employers' Association (KOGA) and the Indonesian Association of Fiber and Filament Yarn Producers (APSYFI) resorted to layoff policies with the number of the severed employees reaching 87,236.

Nurdin Setiawan, API deputy chairman for HRD and employment, said the overseas market accounted for 30 percent of demand in the national textile and textile products (TPT).

Layoffs in the TPT industry are like an iceberg phenomenon. The data represents the affected workers partially.

With the demand from overseas markets becoming sluggish, textile exporters have endured grim prospects with order cancellations estimated at 30 percent. Nurdin said textile-exporting countries, such as Bangladesh, India and China faced the same situation. “Layoffs in the TPT industry are like an iceberg phenomenon. The data represents the affected workers partially," he said.

Businesses are facing constraints to tap into the domestic market. According to Nurdin, the domestic market had been flooded by imported goods, with the eroded utilities shrinking to 40 percent. In addition, the domestic market is subject to massive circulation of imported raw materials and finished goods being traded without the Value Added Tax (VAT) as well as a large influx of used clothes.

Given the current situation, Anton J Supit, who is Apindo’s head of employment and social security affairs, predicted layoffs would continue in 2023.

KOMPAS/PRIYOMBODO

Footwear factory workers shop for lunch from street vendors outside the factory in the Gerendeng area, Karawaci, Tangerang City, Banten, Monday (11/14/2022). The government is trying to anticipate a wave of layoffs.

Regulatory problems

Entrepreneurs’ associations, including Apindo and API, hope the government will immediately respond to this situation to help hold off worsening business uncertainty.

Following the decision by the Constitutional Court which declared Law No. 11/2020 concerning job creation unconstitutional, the Manpower Minister issued a Regulation No. 18/2022 concerning employees’ minimum wage for 2023, which the employers’ association deemed as inappropriate. They said the government should not have issued a new regulation within two years.

The newly issued regulation mandates an increase in the minimum wages of up to 10 percent. Anton said the increase at such a level could add a burden to companies, especially export-oriented companies with large employment.

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"If the industry is constrained by wages payment, [it] has the potential to cause workers to be laid off and become vulnerable and they will end up in the informal sector," he said. The business circles hope for the revocation of Regulation No. 18/2022 to allow reenactment of Government Regulation No. 36/2021.

Aloysius Budi Santoso, Apindo deputy chairperson for employment and member of the National Wage Council, said Regulation No. 18/2022 had been issued without going through a discussion at the council and that the government seemed to turn its back on the promise to give the employers a discretion in the minimum wages policy for 2023.

“PP [government regulation] No. 36/2021 was good because the minimum wage formula used factors of inflation or economic growth. This would also be able to resolve the inter-regional wage gap that occurred during the implementation of PP No 78/2015 concerning wages," said Budi. (MED)

This article was translated by Musthofid.