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Severance pay compliance in Indonesia

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  • Brusentsev, Vera
  • Newhouse, David
  • Vroman, Wayne

Abstract

This paper contributes new evidence from two large household surveys on the compliance of firms with severance pay regulations in Indonesia, and the extent to which changes in severance pay regulations could affect employment rigidity. Compliance appears to be low, as only one-third of workers entitled to severance pay report receiving it, and on average workers only collect 40 percent of the payment due to them. Eligible female and low-wage workers are least likely to report receiving payments. Widespread non-compliance is consistent with trends in employment rigidity, which remained essentially unchanged following the large increases in severance mandated by the 2003 law. These results suggest that workers may benefit from a compromise that relaxes severance pay regulations while improving enforcement of severance pay statutes, and possibly establishing a system of unemployment benefits.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5933.

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Date of creation: 01 Jan 2012
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Handle: RePEc:wbk:wbrwps:5933

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Keywords: Labor Markets; Wages; Compensation&Benefits; Social Protections&Assistance; Labor Policies; Labor Management and Relations;

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  1. Milan Vodopivec & Lilijana Madjar & Primoz Dolenc, 2009. "Empirical Analysis of the Severance Pay Non-Performance in Slovenia," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 7(4), pages 333-348.
  2. MacIsaac, Donna & Rama, Martin, 2001. "Mandatory severance pay : its coverage and effects in Peru," Policy Research Working Paper Series 2626, The World Bank.
  3. Chris Manning & Kurnya Roesad, 2007. "The Manpower Law of 2003 and its implementing regulations: Genesis, key articles and potential impact," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 43(1), pages 59-86.
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