1. Chris Manning Arndt Corden Division of Economics Crawford School, ANU

2.  Reconciling a minimum standard of labour protection for insiders with providing better jobs of outsiders ◦ Past lessons ◦ Policy issue: Transitioning to a unemployment insurance scheme?  Timing  Sequencing and speed of transition

3.  Like many countries with a civil law tradition, extensive legislation of labour standards (Revised Law 13, 2003) ◦ Most standards similar to many other countries: hours of work, child and female employment, health and safety ◦ Legislated by Central Government (some countries by the regions) ◦ Two outliers in the Indonesian case and two other controversial areas  Severance pay and contract employment: severance is probably much more important

4.  Many countries have severance regulations ◦ Some countries leave severance pay conditions up to parties to determine within their CLAs ◦ Most countries set low to moderate severance rates ◦ Entitlement generally limited to redundancies/layoffs ◦ Complemented with legal recourse for unfair dismissal claims

5.  Indonesian severance strict by international standards (Law 13,2003): ◦ High rates of severance ◦ In combination with extensive minimum wages, which are set at the average wage not a social safety net  a burden for some firms (especially small scale, competitive?)  no alternative options such as individual worker accounts

6. Months of Severance Pay for Dismissed of Workers, Economic Cause, Indonesia 1986,1996, 2003

7. 0 2 4 6 8 10 IndiaMalaysiaPhilippinesSingaporeThailandIndonesia Severance pay in no. of monthly wages A worker with 4-years experience at the firm and dismissed for economic reasons Source: GIAT-UNPAD (2004)

8.  Common types of employment arrangements found in countries ◦ Permanent employment contracts ◦ Fixed term employment contracts ◦ Temporary workers hired through temporary work agencies (outsourcing manpower)

9.  Many countries do regulate employment arrangements but ‘regulatory strictness’ varies across countries  In recent years many countries have begun relaxing restrictions on employment contracts

10. OECD EXPERIENCE o Contract renewals omost countries permit contract renewals more than 2 times (19 of 26 circa 2000)  Cumulative duration of contracts ◦ most countries have no limit on contract duration (only 5 of 26 for 3 years or less)  Temp worker agreements: more countries have restrictions OTHER COUNTRIES  However, Indonesia not too different from several other countries

12.  Two main effects: ◦ Contributed to slower employment growth in the formal sector  Regular wage jobs stagnate in both agriculture and non-agriculture ◦ Probably one explanation for the casualisation of employment in the main sectors  Low wage, casual jobs almost double, take up much of the new jobs since around 2005 in the major sectors

13. Index of employment by Major Work Status Group, Agriculture & Non- Agriculture, 2001-9 (2001=100)

14. Index of work status jobs outside agriculture, Indonesia 2001-2009 (2001=100) Casual jobs as a % of all jobs in major sectors, 2001-9

15. Real Monthly Wages, Casual and Regular Workers 2003- 2009

16. Percentage of Workers and Average Wages of Regular and Casual Employees by Level of Schooling, Indonesia 2009

17.  Once the UU13 was passed, revision of the law became controversial and efforts at reform failed ◦ One problem was that the workers were not offered sufficient incentives to negotiate a new deal  One future option is to convert the severance pay system to unemployment insurance ◦ Not an option in 1998 (unlike Thailand) ◦ Win-win for workers and employers

18. ◦ Needs to be a gradual process  by type of establishment (size of firm)  level of benefits to avoid major cost blow outs and poor of implementation  ALMP critical to the success, and needs careful prepartion (LMI and training factilities etc.)

19.  Labour market context: ◦ Regular wage employees remain a small proportion of total employment of at least another 10 years ◦ Policies for informal sector workers also very important

20. TERIMA KASIH

21. Regular and casual wage employment in selected industries by gender, Indonesia 2001-2009