Chri ris s Mannin nning Arnd ndt t Corden den Divi visi sion - PowerPoint PPT Presentation

Chri ris s Mannin nning Arnd ndt t Corden den Divi visi sion on of Economi mics cs Crawford ford Schoo ool, l, ANU

 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

 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

 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

 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

Months of Severance Pay for Dismissed of Workers, Economic Cause, Indonesia 1986,1996, 2003 30 25 20 1986 15 1996 10 2003 5 0 <One yr. of Three years Five years Ten years Twenty Maximum service years

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

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

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

OECD EXPERIENCE o Contract renewals o most 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

Country Fixed term Contracts Temporary work through TWAs Strict restrictions – non- Indonesia Strict core activities Japan No restrictions Restricted to certain sectors Korea No restrictions Restricted to certain sectors Malaysia No restrictions -- Philippines Strict Temp work permitted but considered direct hires Thailand No restrictions

 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 sual jobs almost double, take up much of the new jobs since around 2005 in the major sectors

Index of employment by Major Work Status Group, Agriculture & Non- Agriculture, 2001-9 (2001=100) Regular wage Casual Agric Non-Agric Total Agric Non-Agric Total 2001 100 100 100 100 100 100 2002 83 95 93 124 150 133 2003 75 89 87 125 132 128 2004 75 92 89 123 154 134 2005 77 98 95 152 172 159 2006 83 97 95 153 184 164 2007 84 102 99 163 181 169 2008 93 100 99 165 217 183 2009 107 107 107 162 233 187 Informal All Jobs 2001 100 100 100 100 100 100 2002 101 97 101 102 99 101 2003 106 89 103 106 92 100 2004 102 91 100 102 97 100 2005 100 83 97 104 100 102 2006 97 97 97 101 104 102 2007 99 109 101 104 110 106 2008 99 125 103 104 115 109 2009 98 120 102 105 120 111

Index of work status jobs outside agriculture, Indonesia 2001-2009 (2001=100) 300 200 100 0 2001 2003 2005 2007 2009 Regular w age Casual Informal Total Casual jobs as a % of all jobs in major sectors, 2001-9 Agric Manuf 15.0 Trade Services Total 10.0 5.0 0.0 2001 2003 2005 2007 2009

Real Monthly Wages, Casual and Regular Workers 2003- 2009 1000000 750000 Male Casual Male regular 500000 Female casual Female regular 250000 0 2003 2005 2007 2009

Percentage of Workers and Average Wages of Regular and Casual Employees by Level of Schooling, Indonesia 2009 Level of Schooling Regular Casual-Agric. Casual Regular Casual-Agric. Casual Non- Non- Agric Agric % of Workers Wages per month (Rp.000 Primary or Less 25.1 83.4 61.7 712 413 638 Lower secondary 17.7 12.2 23.8 916 498 696 Upper secondary 43.7 4.3 14.3 1443 586 790 Tertiary 13.5 0.0 0.2 2602 1158 1632 Total 100 100 100 1322 431 675 Total Number (000) 29114 5879 5670

 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

◦ 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.)

 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

TERIMA KASIH

Regular and casual wage employment in selected industries by gender, Indonesia 2001-2009 Female Male Non- Non- Manufact. Services Agric Manufact. Services Agric Regular wage 2001 100 100 100 100 100 100 2002 94 94 94 82 96 95 2003 83 83 83 76 94 92 2004 84 99 92 76 95 92 2005 102 99 100 80 94 97 2006 86 118 102 85 100 94 2007 93 115 104 85 104 101 2008 93 128 110 93 102 94 2009 97 148 123 104 117 99 Casual 2001 100 100 100 100 100 100 2002 153 144 148 132 105 150 2003 113 121 120 140 91 134 2004 107 163 132 134 91 158 2005 178 196 185 172 97 169 2006 217 178 200 175 101 181 2007 224 167 197 177 97 178 2008 271 226 248 180 119 212 2009 289 217 253 176 118 229