Indonesian Labor Legislation in a Comparative Perspective: A Study of Six APEC Countries

October 1996 Current labor legislation in Indonesia is a mixed bag of laws protecting workers' welfare but controlling organized labor. The country must take care not to favor centrally mandated labor standards over those negotiated between workers and their employers. Nayar compares Indonesian labor legislations with labor policies in five other APEC countries: Chile, the Republic of Korea, Malaysia, Mexico, and the United States. She focuses on legislation affecting union regulation, minimum wages, nonwage compensation, and working conditions. Current legislation in Indonesia is a mixed bag of laws protecting workers' welfare but controlling organized labor. Indonesian laws restrict the ability of labor organizations to effectively represent workers to management at the plant level. In this, they are similar to Malaysian laws and, to less extent, new Korean legislation. They provide a stark contrast to current legislation in Chile and the United States. But Indonesian legislation governing minimum wages, mandated nonwage benefits, and other labor standards appear to be at least as generous as legislation in the five other countries, which all have substantially higher per capita incomes. Indonesia is under pressure to ease restrictions on unions. Nayar suggests that allowing effective plant-level bargaining could give workers more of a voice at the workplace, but that improving industrial relations will require more than legislative changes. Careful changes in legislation and in industrial relations - and increased deregulation and competition in product markets - could help unions play a more positive role, while downplaying labor's more negative role. She cautions against centrally mandating labor standards instead of letting workers and their employers negotiate them at local plants. This paper is the first in a series of studies on labor market issues initiated by the Bank's East Asia and Pacific Region, Country Department III.