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The Manpower Law of 2003 and its implementing regulations: Genesis, key articles and potential impact

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  • Chris Manning
  • Kurnya Roesad

Abstract

This paper reviews Indonesia's Manpower Law 13/2003 and related regulations, against a backdrop of slow employment growth, business concerns about the legislation and government attempts to change it in 2006. The paper focuses on severance rates and dismissals, short-term contracts and out-sourcing, and minimum wages, also briefly discussing other articles, and comparing the law with those in neighbouring countries. It suggests that certain articles have contributed to significantly higher wage costs and reduced flexibility in the management of labour in Indonesia's formal sector, even though compliance is by no means universal within the private sector. Key provisions, especially large increases in severance rates, and needs criteria imposed for the purpose of setting minimum wages, are also out of step with labour market policies in other developing countries. Circumstantial evidence suggests that these measures have adversely affected the investment climate and damaged prospects for a recovery in employment.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:bindes:v:43:y:2007:i:1:p:59-86
    DOI: 10.1080/00074910701286396
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    References listed on IDEAS

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    1. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
    2. Martín Rama, 2001. "The Consequences of Doubling the Minimum Wage: The Case of Indonesia," ILR Review, Cornell University, ILR School, vol. 54(4), pages 864-881, July.
    3. Ann Harrison & Jason Scorse, 2004. "Moving Up or Moving Out? Anti-Sweatshop Activists and Labor Market Outcomes," NBER Working Papers 10492, National Bureau of Economic Research, Inc.
    4. Lustig, N. & Mcleod, D., 1996. "Minimum Wages and Poverty in Developing Countries : Some Empirical Evidence," Papers 125, Brookings Institution - Working Papers.
    5. Alatas, Vivi & Cameron, Lisa, 2003. "The impact of minimum wages on employment in a low income country : an evaluation using the difference-differences approach," Policy Research Working Paper Series 2985, The World Bank.
    6. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
    7. Nora Lustig & Darryl McLeod, 1996. "Minimum Wages and Poverty in Developing Countries: Some Evidence," Discussion Papers 125, Brookings Institution International Economics.
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    Cited by:

    1. repec:ilo:ilowps:466252 is not listed on IDEAS
    2. Brusentsev, Vera & Newhouse, David & Vroman, Wayne, 2012. "Severance pay compliance in Indonesia," Policy Research Working Paper Series 5933, The World Bank.
    3. Matsumoto, Makiko. & Verick, Sher., 2011. "Employment trends in Indonesia over 1996-2009 : casualization of the labour market during an era of crises, reforms and recovery," ILO Working Papers 994662523402676, International Labour Organization.
    4. Haryo Aswicahyono & Chris Manning, 2011. "Exports and Job Creation in Indonesia Before and After the Asian Financial Crisis," Departmental Working Papers 2011-11, The Australian National University, Arndt-Corden Department of Economics.
    5. Latif Adam & Siwage Dharma Negara, 2015. "Improving Human Capital through Better Education to Support Indonesia’s Economic Development," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 61, pages 92-106, August.

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