September 1995 Indonesia's labor market in the 1990s is characterized by rising labor costs, reduced worker productivity, and increasing industrial unrest. The main problem is generous, centrally mandated, but unenforceable worker benefits. Legislation encouraging enterprise-level collective bargaining might help reduce some of the costs associated with worker unrest. Indonesia's labor market in the 1990s is characterized by rising labor costs, reduced worker productivity, and increasing industrial unrest. The main problem is generous, centrally mandated, but unenforceable worker benefits. Legislation encouraging enterprise-level collective bargaining might help reduce some of the costs associated with worker unrest. Policy measures Indonesia adopted in 1986 led to a boom in manufacturing exports and foreign direct investment and put Indonesia on the path to rapid export-oriented, labor-intensive growth. In the second half of the 1980s, because of abundant cheap labor, real labor costs did not rise but worker productivity did, partly through improved education and training of the workforce. There are increasing signs that in the early 1990s Indonesia's competitiveness is being eroded by several factors: rising labor costs, low worker productivity, and increasing industrial unrest. One problem is generous, centrally mandated benefits, detailed in the new social security law. The estimated cost of the government-mandated benefits package would be a hefty 12 percent of the wage bill. The other problem is that the government has greatly limited organized labor, viewing it as a threat to political and economic stability. This approach of mandating benefits centrally through legislation without empowering workers to enforce compliance with the legislation (or negotiate their own benefits packages with employers) is beginning to strain industrial relations in Indonesia. Policymakers should consider allowing effective, democratic plant-level worker organizations. Legislation to encourage collective bargaining at the enterprise level would enable workers and managers to negotiate outcomes that might improve worker productivity. Improving dispute resolution mechanisms and the workers' ability to be heard in the workplace could reduce the incidence of illegal or wildcat strikes. But more than legislative changes are needed. Changes in approaches to industrial relations, deregulation, and increased competition in product markets could make unions' roles more positive, while limiting their negative role. This paper -- a product of the Office of the Vice President, Development Economics -- was prepared as a background paper for World Development Report 1995 on labor.

The book focuses on Indonesia's most pressing labor market challenges and associated policy options to achieve higher and more inclusive economic growth. The challenges consist of creating jobs for and the skills in a youthful and increasingly better educated workforce, and raising the productivity of less-educated workers to meet the demands of the digital age. The book deals with a range of interrelated topics---the changing supply and demand for labor in relation to the shift of workers out of agriculture; urbanization and the growth of megacities; raising the quality of schooling for new jobs in the digital economy; and labor market policies to improve both labor standards and productivity.

Against the backdrop of growing anti-globalisation sentiments and increasing fragmentation of the production process across countries, this book addresses how the Indonesian economy should respond and how Indonesia should shape its trade and industrial policies in this new world trade environment. The book introduces evaluation not on tariffs but on new trade instruments such as non-tariff measures (SPS, TBT, export measures and beyond border measures), and looks at industrial policies from a broader perspective such as investment, accessing inputs, labour, services, research and innovation policies.