Beware of Layoff Wave in 2023

The Indonesian Employers' Association (Apindo) has warned of a large wave of layoffs in the event of a global recession in 2023.

KOMPAS/PRIYOMBODO

Footwear factory workers leave the factory during lunch break in the Gerendeng area, Karawaci, Tangerang City, Banten, Monday (11/14/2022)..

The possible wave of layoffs, especially in the export-oriented, labor-intensive manufacturing sector, will be caused by reduced demand from a global recession, but also due to domestic uncertainties.

According to Apindo, as well as data from the Financial Services Authority (OJK), the National Social Security Council, and the Manpower Ministry from January to October 2022, at least 2.8 million workers had claimed their old age pension (JHT). Of these, 834,037 people claimed their JHT because they had been laid off (Kompas, 14/12/2022). It is believed that the actual number of people affected by layoffs is higher.

Also read:

> Mass Employment Layoffs Feared to Persist

> Make Sure Not to be Late

One of the domestic factors that has caused layoffs is the rise in interest rates, as Bank Indonesia had continued to increase its benchmark rate. Another factor, according Apindo, is Manpower Minister Regulation No. 18/2023 on the 10 percent minimum wage increase for 2023.

Specifically for the textile and garment industries, the uncertainty stems from unhealthy competition due to imported raw materials and finished goods. As a result, only 40 percent of production capacity can be utilized. Some imported goods are not subject to value-added tax. The situation has also been exacerbated by the entry of illegal bulk imports of used clothes.

KOMPAS/WISNU WIDIANTORO

Apindo Chairman Anton Supit (second from right) with other Apindo management while participating in a discussion on employment at the Kompas Daily Editorial Office, Jakarta, Tuesday (13/12/2022).

Apindo's early warning deserves attention. The export-oriented and labor-intensive manufacturing sector not only employs many workers and generates a high amount of foreign exchange, but also serves as one of the main drivers of the economy. Prior to the Russian invasion of Ukraine on 24 Feb. 2022, the manufacturing industry had employed as many as 1.2 million workers in 2021 and around 2.2 million people in 2022. The total labor force in the manufacturing industry reached 18.64 million workers in 2021. The manufacturing industry also contributed 16.1 percent to the national economy.

The government has issued a number of fiscal and non-fiscal policies to support the labor-intensive manufacturing sector. Implementing these strategic policies will determine the sector’s growth. The sector must also be protected from unfair practices, such as the manipulation of the registration number of certain types of restricted imported goods. At the same time, these protections should not violate the regulations of the World Trade Organization.

Also read: Curbing the Surge in Layoffs

The industrial sector must also be able to increase productivity and efficiency and continue to innovate. The point is to increase domestic and export competitiveness. In addition, it is necessary to develop types of industries that have comparative and competitive advantages, including producing specific goods that have niche markets and developing the processing industry for tropical agricultural products.

Our large population is the main market for our manufactured products. Therefore, the people's buying power must be maintained through fiscal and monetary policies.

This article was translated by Hendarsyah Tarmizi.