http://www.thejakartaglobe.com/opinion/article/19830.html
May 14, 2009 Editorial Labor Law Reform Must Not Hurt Firms Indonesia's labor laws badly need to be revamped. The government's plan to scrap the contract worker scheme, however, is not the answer and instead will exacerbate an already bad situation. There is no denying that Indonesia has one of the most rigid labor laws in the world. It is nearly impossible to release workers, even those who are not productive, much less those who abuse company rules and regulations. According to US economist Steven H. Hanke, it costs an average of 108 weeks of an employee's salary to fire a worker in this country. This is both unacceptable and uneconomical, and makes bad business sense. To get around this issue, companies have opted to hire workers on contracts rather than on a permanent basis. If this small window of opportunity for companies is shut, it will lead to severe cost increases and possibly put thousands of small- and medium-sized companies out of business. The ill-conceived Labor Law is also bad for the workers themselves for three main reasons. The law has forced employers to move millions of employees to contract status, thus depriving these workers the security of long-term employment. But employers have been compelled to take such action out of necessity rather than choice just to stay in business. The existing Labor Law has also been detrimental to new entrants to the labor market. Statistics indicate that out of a 112-million-strong labor pool, only 28.7 million are employed in the formal sector. And of this number, 60 percent are contract workers. The timing for undertaking such action is woefully off. In the heat of a presidential election, such a move will be seen as populist and thus will not be given the necessary review and attention it needs and deserves. Populist policies are often made for the wrong reasons and are based on misconstrued assumptions and have long-term negative affects that are difficult to rectify. The more important issue, however, is the government's underlying philosophy with regard to labor as a crucial component of economic development. At the moment, the philosophy is unclear, if indeed there is one. Workers' rights need to be fully protected but not at the expense of employers. Workers who feel that they have been mistreated or unlawfully fired by employers should have the right to challenge their dismissal. On the other hand, employers must be given the flexibility to hire and retrench workers according to economic and business conditions without having to pay out crippling compensation packages. A balance between employers' and workers' rights need to be achieved for the good of the country as a whole. If not, economic development will be stymied and future entrants to the work force will be left out in the cold.
