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Labor regulations and industrial relations in Indonesia

  • Cox Edwards, Alejandra
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    Since the mid -1980s, Indonesia has rapidly deregulated. Employment opportunities, income generation capacity, and the opportunity to negotiate better working conditions have expanded. Many Indonesians are concerned that workers have not shared in economic development benefits and think that a minimum wage increase would bring bottom wages up and reduce wage differentials. Additionally, international agencies have criticized Indonesia for labor standard violations. In response, the Indonesian government has increased workers'statuary rights and removed collective bargaining obstacles. Real minimum wages doubled between 1988 and 1995. Regulation enforcement toughened. Manufacturing employment expansion has broaden statutory rights coverage, requiring enforcement. The government should close the gap between statutory rights and voluntary agreed-on working conditions. It must correct legal standards and reduce labor dispute intervention. Current labor regulations inhibit constructive discourse between workers and employers on: dismissal, dispute resolution mechanisms, and social security contributions. Appropriate legislative action in job safety and child labor is needed. Inviting public intervention rather than allowing strikes and lockouts to operate isolates negotiation from market conditions. While labor regulation should facilitate voluntary employer and worker agreements, it often discourages job creation. Keeping Indonesia's economy competitive requires an industrial relations system relying on voluntary wage and working condition negotiations. The tasks workers perform and the employers for whom they perform them must be subject to change. This process is a normal feature of healthy labor markets.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1640.

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    Date of creation: 31 Aug 1996
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    Handle: RePEc:wbk:wbrwps:1640
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    1. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
    2. Steve J. Davis & John Haltiwanger, 1991. "Gross Job Creation, Gross Job Destruction and Employment Reallocation," NBER Working Papers 3728, National Bureau of Economic Research, Inc.
    3. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
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