Analyst at Indonesia Labor Institute
To prevent the escalating vulnerability of workers should be done by extending work protection to all types of work regardless of work relationship, especially types of workers who are not covered by work protection.
Will workers live a more decent life in what the government sees as a more flexible labor market in its policy?
This question has resurfaced as a response to the contentious enactment of Law No 6/2023 (in replacement of the Job Creation Law). For workers and labor activists, this legislation will be remembered for a long time as another drawback after the workers' fort of protection has been dismantled by Law No. 13/2003. This situation is a bit ironic given international experience, in which legislation seeking a business-friendly environment is usually carried out by a government driven by a liberal party, not a pro-people party.
The labor union (SB) questions the existence of this new law because it is seen as paving the way for capitalism, away from the concept of social economy mandated by the 1945 Constitution (Article 27), which promotes decent work and livelihood for the sake of humanity. The government argues the law is part of the policies to create friendly investment through a flexible job market to overcome unemployment due to the global crisis.
It means that the government prioritizes job creation over decent work provision. The question is whether the law can guarantee to create jobs extensively. Can the Constitution justify the government's move to overcome unemployment, while it in fact is neglecting jobs and the workers’ decent life? This is a dilemma and there seems to be a need to review the concept of decent work and livelihood.
Labor market flexibility is interpreted as the company's ability to rearrange the production process and use labor efficiently at the expense of workers, with the employers given the leeway to low cost employment (unjust setting of minimum wage) and work termination as well as restrictions on labor union initiatives, including in wage negotiations.
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This flexibility is what labor unions oppose because it disrupts the sustainability of work relationships. It threatens employee commitment to contributing to the company due to job uncertainty, disturbs human resource development, destabilizes industrial relations practices, and further weakens labor unions due to workers being prone to termination.
It has to be admitted there are a small number of workers who are resigned to this flexibility type with them feeling obliged to meet the balance between work and family needs. Such a work occupation is generally sought after by a small group of new millennial workers.
Debate at the global level about labor market flexibility is not new, although the term itself only became popular in the 1980s. Labor unions, employers and governments have differed in views on this. Of course, employers prefer flexibility over workers.
A government’s approach varies greatly according to their chosen political views. In the early 1990s, policymakers generally agreed that they could no longer hold on to full employment and a strong social protection system. Thus, they came up with a structural adjustment package by introducing work flexibility and reducing social protection as part of a change in the labor market.
Debate at the global level about labor market flexibility is not new, although the term itself only became popular in the 1980s.
Governments had to adjust to their national labor laws to reduce the high employment protections inherited from the previous regimes. However, after 12 years running, high unemployment remained a major problem throughout the world, especially in developing countries which suffered from high absorption of employment in the informal sector.
In fact, there was evidence that in countries with a relatively high economic growth, employment remained stagnant (see Nesporova, 1999). Argentina's and Chile's policies on labor market flexibility gave different results. In Argentina, the flexibility policies imposed in the 1990s reduced employment rather than increased it. In Chile, the gradual and consistent reset of the labor market fostered sustainable employment.
The Asian Development Bank (ADB) reported in its study that while labor reform was necessary, labor policies should not be taken in isolation as having mainly caused rising unemployment and underemployment in Asia (ADB 2006). There were other problems, such as high bureaucracy, inefficiency and legal uncertainty. The question now is what level of flexibility of the labor market a country should be pursuing.
Occupational health risks
In industrialized countries, labor market flexibility is part of the strategy proposed by the Organization for Economic Cooperation and Development (OECD) in its job study in 1994. The World Bank and the International Monetary Fund have taken the same view as the OECD by referring to labor market flexibility as a key to job creation, although some experts have opposed it, arguing that they are overly simplifying the issue.
In developing countries, the work market is very flexible due to the large informal economy. Escalation of the flexibility system will not bring work formalization with the number of informal workers being expanded. However, employment may grow, but the workers end up being vulnerable to protection, a situation being referred to by World Labor Organization (ILO) as non-employment standards.
In the case of Indonesia, the government took a pragmatic step by issuing the Job Creation Law as an adjustment to mitigate the impact of the global crisis. However, it was not entirely an appropriate step. Each country has different empirical experience, so the same formula will not be workable.
Especially in developing countries, work protection, job growth and unemployment are loosely related. The first and most obvious point is that most labor markets in developing countries are in fact very flexible due to the existence of a large informal economy.
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Production system is highly influenced by informal workers. Many companies turn to them in their production in what is known as putting-out system, in which a company leaves the handling of part of the work to subcontractors (work quite often done remotely).
In Indonesia, flexibility in the job market has been common practice. First, as a result of the labor force exceeding employment opportunities, many people will accept any job as long as they can work.
Second, weak labor supervision gives birth to contract and informal workers (such as the putting-out system practices). Third, the existing regulations are inadequate to protect workers as a whole, which results in millions of workers not being included in the category of company workers. They are given the status only as "work partners." In this situation, flexibility practices will plunge more and more workers into modern slavery.
The formulation of laws that only relies on procedural democracy and negates dialogue with constituents is a mistake in governance in the global era.
The lack of debate and consultation over the Job Creation Law is blamed for the many problems that will harm workers in the future. The involvement of social actors in expressing their views and participating in decision-making is expected to see whether policymaking institutions are sensitive to public interests.
The formulation of laws that only relies on procedural democracy and negates dialogue with constituents is a mistake in governance in the global era.
In addition to causing degradation of the workers' welfare due to uncertain work relationships, career and a weakening of social security protection, another crucial issue is the flexibility of working time in the new law due to the addition of overtime hours and increased working time in business sectors or certain work occupations.
Low wages resulting from the implemented flexible work system will make workers look for additional income to cover living expenses. It means additional working hours for them, which will increase health and safety cases. Does the government’s social security (BPJS) have the capacity to cover the health condition of workers with small contributions? How to meet the target of the Sustainable Development Goals (SGDs) on eradicating poverty? And so on.
In fact, prior to the enactment of Law No. 6/2023, the rate of work accidents in Indonesia was already very high. Based on 2021 data, the rate of work accidents was 642 times per day. The BPJS employment data confirmed this fact.
Data in the 2019 to 2021 period shows an increase in work accidents from 210,789 people in 2019, 221,740 in 2020 to 234,370 in 2021, with disbursed compensation costs of Rp 1.58 trillion, Rp 1.56 trillion and Rp 1.79 trillion respectively.
This data does not yet reflect national representation with it only pointing to 30.66 million workers or 25 percent of the BPJS social security program’s participants, compared with the total of 126.51 million workers nationally. National figures can quadruple. It is unimaginable if the working hours become excessive, as it would potentially happen with the implementation of the Job Creation Law. It would definitely get worse, especially if it lacks strict supervision.
International experience
Flexibility (or rigidity) of the labor market is generally only one model of job creation. There is no single appropriate formula applicable in any country. Different labor market policies can achieve different goals. Laws for job protection are crucial to humanity. However, many policies prioritize the system over humans. In fact, the goal of a policy is to improve people's lives.
Weakening job protection as a whole can undermine the nation's goal of making people prosperous. A coherent approach is needed to promote decent work and minimize workers being excluded from state protection. Successful experiences elsewhere deserve to be made as reference for national policymaking.
The most famous flexibility model that needs to be learned from is that in Scandinavia. In Denmark, the employment protection law is combined with its derivatives of the establishment of effective income protection and labor market policies that provide job or career security, including strengthening social security (active labor market policies). Swedish and Finnish governments allocate high spending on public social services to prevent deficit in decent work creation.
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The economic-social context of Scandinavia and Indonesia is indeed different, but the basic issue is that the government needs to find a balance between job protection provided at the enterprise level and social protection and income security provided to workers. That is why the agenda to create decent work should integrate the social policy framework with many elements.
Although each country has its social institutions with its own policies, there are goals that are generally the same, namely the importance of access to productive employment, income and work security, respect for basic rights of workers, freedom from coercion and discrimination and freedom to labor association and democratic negotiations (social dialogue) in order that the goals are achieved.
Finally, to prevent the escalating vulnerability of workers should be done by extending work protection to all types of work regardless of work relationship, especially types of workers who are not covered by work protection (digital platforms). Avoid a policy that will abolish the minimum wage tripartite negotiation mechanism. Support training, placement and skill development. Help the labor force find work and publicize the importance of lifelong learning for a flexible society.
In essence, labor market regulations are how we can create a sustainable society. It is how we can create systems and institutions needed to get us closer to the goals of the nation.
This article was translated by Musthofid.
