The government of Indonesia is looking to push through a job creation Bill at the end of the month in an attempt to make the country more investor-friendly.
The idea behind the job creation Bill is to make it more appealing for foreign companies to create jobs with stipulations such as allowing employers to hire and fire with lower severance pay and benefits compared with current employment laws. Indonesia’s employment laws have traditionally heavily favoured employees. As a result, foreign investors are often hesitant to enter the Indonesian market.
In addition, the job creation Bill will also allow companies to recruit workers on flexible working hours, thus giving employers the ability to avoid paying full-time wages.
The new job creation Bill comes at a crucial time for Indonesia. Over the past few months, the COVID-19 pandemic has caused unmitigated damage to Indonesia’s economy. Currently, up to 3.7 million people are estimated to have lost their jobs due to the pandemic. The unemployment rate in Southeast Asia’s largest economy has hit a record high of nearly 8 percent, with the total number of unemployed Indonesians standing at 10.6 million out of its 133 million workers.
With the situation looking rather dire, the government is confident that the new Bill will be passed, with six out of the country’s eight major worker unions already having agreed to support the Bill. However, some worker groups have shared some concerns regarding the implementation of the Bill.
“The basic problems of the Bill are it does not recognise minimum wage… cuts severance pay, makes retrenchment so easy,” Said Iqbal, chairman of workers union KSPI, said in a statement on 3 August.
As previously mentioned, Indonesian employment law is very generous towards employees. Under the current laws, workers are guaranteed an annual pay increase and at least twice the amount of severance pay compared with most regional countries. This generally means that manpower costs can accumulate over time, thus deterring foreign investors. These would be adjusted under the Bill.