Indonesia’s Unions Eye New Tack as Wages, Outsourcing Lose Appeal

Indonesia’s labor movement welcomed with open arms the election wins of the Indonesian Democratic Party of Struggle (PDI-P) in the 2014 presidential and legislative election.

The last time a member of the party occupied the State Palace from 2002 to 2004 – PDI-P chairwoman Megawati Sukarnoputri – the House of Representatives ratified the Labor Law, which provides a number of generous benefits and protections for formal sector workers.

The power and influence of the country’s dozens of unions also gathered steam under the two administrations of former President Susilo Bambang Yudhoyono between 2004 and 2014.

The Yudhoyono years saw dozens of major labor rallies and strikes, creating enough havoc and disruption to public life for workers to win several concessions from the government, including several large increases to annual minimum wages and a new national public holiday – International Workers Day on May 1.

More than symbolic victories, the concessions attested to the growing clout of the labor movement, which was repressed for three decades under the New Order era of the late former autocrat Suharto.

But while the unions have come a long way in their struggle to improve the welfare of workers since democratization began over 18 years ago, labor leaders are finding that traffic-stopping rallies and threats of local and national strikes are no longer effective.

There are more than 60 registered trade unions in Indonesia, with countless others not formally acknowledged by the Ministry of Manpower, according to government statistics as of 2014.

The majority of the registered unions, which collectively count more than 10 million members, have formed alliances, or confederations, to increase their bargaining power.

Current President Joko Widodo championed workers’ rights on the campaign trail in 2014, but his administration so far has sought to neuter the labor movement by taking away its biggest bargaining chip – participating in annual minimum wage negotiations.

Some observers and union leaders also see a recent trend of criminalization of labor activists, mostly due to several incidents of workers being detained and arrested in recent labor protests.

This new reality for unions has forced some labor leaders to rethink their current strategies and the issues they plan to focus on going ahead.



Pressuring for higher minimum wages has been the bread and butter of the labor movement’s focus during the democratic era. During the lean years for business following the 1997-1998 Asian financial crisis, minimum wages rose an average of 10% annually from 2000 until 2012.

In 2012, unions and workers began demanding a larger increase in minimum monthly wages, largely as a result of the country’s relatively prosperous GDP growth rates of over 6% annually in previous years.

Following months of labor protests and walk-offs at some industrial estates, Indonesia’s monthly minimum wage in 2013 was increased on average by 19.1% to Rp1.3 million that year.

This sharp increase notably affected Jakarta and natural resources hub East Kalimantan, with their respective minimum wages rising by 43.87% and 48.86% to Rp2.2 million and Rp1.75 million. These were the largest minimum wage increases for any region in Indonesia for over a decade.

Workers also won a big concession with the establishment of a new national agency to manage social security, paving the way for the long-overdue implementation of the 2004 Law on Social Security in 2014.

In yet another show of force, the labor movement in 2012 forced the government to ban labor outsourcing, which employers had used quite effectively in circumventing the employee dismissal stipulations in the 2003 Labor Law.

Employers and the government at the time had hoped that these gestures would soften the unions’ penchant for constant rallying and their opposition to amending the Labor Law but that change of heart failed to materialize.

However the failure to implement the outsourcing ban has left a sour taste in the mouths of committed labor activists. Employers continue to use outsourcing as a means of avoiding the unreasonable strictures on retrenchment included in the Labor Law of 2003. Successive governments have effectively turned a blind eye to the practice.



In 2014 Indonesia’s economic situation took a turn for the worse. The prices of commodities such as coal and minerals, whose exports made up around 25% of Indonesia’s GDP, commenced a downward slide.

The lingering global economic turbulence and China’s economic slowdown were some of the factors resulting in commodity prices falling to multiple-year lows. As a major commodity exporter and lacking a well-developed downstream industry, Indonesia’s economic performance is affected heavily in times of low commodity prices.

Oversupply was also a factor. During the 2000s commodity boom and after the 2007-2008 global financial crisis, many firms entered the commodities sector and existing companies invested to expand production, causing a supply glut which placed more downward pressure on prices.

The economic slump and higher wages also impacted the manufacturing sector. Factories throughout the country felt a negative impact from having to pay their workers relatively high salaries at a time when logistics costs were already eating into profits.

According to some reports, the country’s garment manufacturing center of West Java in 2014 reported declines in profits of up to 40% after employers started paying their workers the higher wages. As a result, the government and employers became less receptive to the high minimum wage demands of the unions.

Labor leaders ignored the country’s somber economic reality, refusing to compromise over demands that wages be raised as high as 30% in most regions.

Business groups and even some government officials lambasted the unions for appearing more interested in protesting and rabble-rousing than accepting reality, making it difficult to conduct sensible negotiations with business groups and local governments. The situation also caused a fall in public sympathy for the problems faced by workers.

Government and business were also frustrated by the inability of the labor federations to agree on who should represent them in tripartite talks between local leaders, unions and business owners, as each of the confederations vied for influence, not least in order to gain political advantage for their leaders.

Former leading union activists have landed lucrative government jobs. They include Dita Indah Sari, a former radical who became an advisor to the Minister of Manpower in the Yudhoyono government and has retained the position until today. Many of today’s activists most likely see this as a potential career path themselves.


New wage regulation

Apparently fed up with the annual rallies by workers and protracted wage negotiations between unions, regional governments and employers at the end of each year, the government of President Joko Widodo issued a new regulation in 2015 on how minimum wages would be formulated.

The government’s new policy stipulates that minimum wages will be based on a combination of the inflation assumption and a region’s economic growth. The new scheme eliminates the previous process involving tripartite negotiation and a basket of 64 basic prices known as the cost of living index (KHL).

While most unions continued to hold their year-end wage rallies in Central Jakarta and several industrialized regions, no local administration hiked their monthly minimum wage for 2016 more than Rp500,000 per month, with an average annual wage increase of around 11% – consistent with inflation and economic growth at that time.

The economy grew at 4.73% in the third quarter of 2015, greater than the previous quarter but not as good as the decade-average 5.8% or the predicted 4.8%.

Unions and other labor groups failed to put up a unified front in opposing the new wage regulation, continuing their problem of a lack of unity, giving local governments and business groups the biggest say in final minimum wage levels.


Refusing to change

Said Iqbal, the president of the Confederation of Indonesian Workers Unions (KSPI) said the new regulation on minimum wages and the government’s perceived lack of sympathy to the labor movement will not change the policies and goals of the KSPI and other unions.

Well-known for its persistence in leading strikes or organizing rallies, the KSPI was founded in 2003 and currently has a membership of around 2.9 million.

“There are not many changes to the demands that we are fighting for now with our demands 10 years ago. The issues still revolve around getting a decent salary based on the cost of living index (KHL),” Iqbal told Concord Strategic in an interview at the KSPI office in East Jakarta.

Iqbal, Indonesia’s current main labor agitator, said despite the new wage regulation unions are still demanding the government increase the number of items in the KHL from 60 to 84.

“Instead of improving the quality of the KHL as we demanded, the government through Government Regulation (PP) No. 78 of 2015 removed it entirely. And as the figures for inflation and economic growth are announced by the Central Bureau of Statistics (BPS), which is part of the government, the new regulation also abolishes workers’ rights to negotiate for their salaries,” he insisted.

“The inflation and economic growth figures do not reflect the real situation for workers. Implementation of the regulation is a throwback to the era of cheap labor,” he added.



Iqbal also slammed the current administration for the alleged “criminalization” of the labor movement, saying it is another sign that the country is reverting back to the ways of the Suharto era.

“During wage protests late last year, police personnel arrested workers who staged peaceful and procedural demonstrations. Twenty-six labor activists are currently on trial at the Central Jakarta District Court, 10 in Batam (Riau Islands), Bekasi (West Java) five, and Medan (North Sumatra) seven,” he said.

“This is a threat to democracy. (In June) the ILC (International Labor Conference) in Geneva highlighted the assaults of 16 labor activists in Bekasi (West Java) by police personnel in 2014,” he said.

Observers have also noted a trend of criminalization and violence by the state against some union actions in recent years. “This has curbed their freedom of association and forced some union members to become more militaristic,” Endy Bayuni, the former chief editor of The Jakarta Post wrote in an op-ed in the daily in 2014.

He said this apparent tilt by some labor activists for a more militaristic approach can be seen in occasional ‘sweeping’ practices, adding that these actions are reminiscent of the early days of the industrial revolution in the West.

The ‘sweeping’ involves activists visiting factories and other workplaces, sometimes using force, to demand all workers join their protests and strikes. Due to this trend, Bayuni said, many factories are forced to shut down on May 1 during Labor Day, fearful that their workers will be intimidated to join the rallies and the possibility of damage to property at workplaces.

Bayuni said that police often chose not to interfere in preventing sweeping actions, in spite of requests from employers, for fear of being accused of cracking down on the labor movement and union bashing.

However, Christianus Panjaitan, an official with the International Labor Organization’s (ILO) representative office in Jakarta, told Concord Strategic that ‘sweeping’ is simply an indication that the labor movement as a whole is not solid and the issues harped on by union leaders have a limited appeal for many workers.

Iqbal said that Indonesia has advanced and strict labor regulations exist that ensure the rights of workers, but implementation is poor. “The current state of workers unions is even moving backward with new restrictions such as limiting the number of unions that can be established in a special economic zone and restricting areas to stage protests,” he added.

The union leader said he is also witnessing a decrease in the membership of workers unions, due to large lay-offs in recent years and intimidation against workers planning to join or form a union. “For example, Nippon Denso, part of the Toyota auto manufacturing group, fired its employees who joined the Metalworkers Federation FSPMI,” Iqbal alleged, without elaborating.



With few options currently remaining to advance the cause of labor, some unionists are eying the crowded realm of national politics. Iqbal cited the creation of a new political mass organization, Rumah Rakyat Indonesia (RRI), or the Indonesia People’s House, in May, comprising various workers unions as well as student and farmer activists.

“This is aimed to become a pressure group uniting the voices of workers, students, fishermen, farmers, etcetera in our efforts to improve welfare and purchasing power,” Iqbal said.

He said unions are also considering, although haven’t decided, to turn RRI into a national political party.

“The party should be independent but not neutral, meaning that the unions or other groups inside it will still have and can fight independently for their own causes.”

He said unions are targeting to form the political party in time for the next general election. However, due to the steep requirements for forming a new political party, it is highly unlikely that RRI will be on the ballot in 2019. To be allowed to participate in elections, a party has to be present in 50% of all provinces and cities, and in the cities be present in at least a quarter of the districts.


Past failures

There have been a number of attempts in the past to form workers’ political parties but none have gone anywhere.

While it might be logical to assume that workers would support a political party dedicated to their interests, most observers believe that the workforce is on the whole interested only in bread and butter issues such as wages and working conditions and not in more ideological issues.

Most political parties attempt to attract support from workers at elections – often through questionable hand-outs – but then conveniently forget them once votes are cast.

Figures who have tried to enter politics through the workers’ movement in the past include Mochtar Pakpahan. He founded the Confederation of Indonesian Prosperity Trade Unions (KSBSI) in 1992 with respected persons such as the late former President Abdurrahman ‘Gus Dur’ Wahid, at the time a leader of the Nahdlatul Ulama religious organization.

Pakpahan was jailed by Suharto for his activism and opposition to the official union of the day, the SPSI, but he was unable to garner enough votes in the general election of 1999 to take a single seat at the House of Representatives.

It is a continual frustration for left-wing organizers in Indonesia that blue-collar workers have little interest in the political parties that attempt to represent them.

While workers are now free to form labor unions, they are often workplace associations rather than trade groupings. International Labor Day is about the only time when they work together, and then only on issues directly affecting them such as the use of employment outsourcing and wages.

The ILO’s Panjaitan made a similar observation, saying Indonesia’s unions are far too fragmented at the moment to evolve into an effective political force.


New gripes

With minimum wages increasingly looking like a losing battle, Iqbal said workers plan to focus on other issues during the traditional worker protest season at the end of the year.

“The issuance of 12 economic stimulus packages since the third quarter of 2015 has done nothing to improve workers’ welfare. The government argued that the packages will in the end help to fix workers’ livelihoods by attracting more investors, but the fact is we are still seeing lay-offs,” Iqbal said.

“This means that the economic packages have failed to solve the problems. It was like giving medicine to cure a headache for someone who suffers heart problems.”

“This, again, is a mirror of what Suharto said during his long tenure, that he asked the public to be calm and wait while he gave incentives for his conglomerate cronies. What happened then? The public never got the promised benefits.”

Iqbal claimed that employers are becoming more “arrogant” with the privileges and protections provided by the current government. “They are refusing to hold discussions and negotiations with unions on salary, working contracts. This is like the beginning of the repressive New Order era when unions were busted,” he said.



Despite the determination of unions like Iqbal’s KSPI, most observers and labor experts see a trend of reduced public activity by labor activists in the near term.

Panjaitan sees less enthusiasm for protests and strikes by rank-and-file union members and other workers following the implementation last year of the new regulation on determining regional minimum wages.

He also sees a trend of disenchantment among workers over the failure of union leaders like Iqbal to focus on issues other than minimum wages. “There are several other issues related to labor that union leaders can focus on, such as social security and different types of wages at higher levels, as well as engaging in collective bargaining, but they seem to be unwilling or unable to do so,” Panjaitan said.

Hari Nugroho, a lecturer at the University of Indonesia (UI) and a member of the Research Committee on Labor Movements, sees little chance of Indonesia developing an active and mature labor movement any time soon.

While there are bright spots, the development of the current Indonesian labor movement is handicapped by the vulnerability of its social base, he wrote in a report in the Global Dialogue newsletter in May.

“The young generation – which makes up most of the workforce and is the mainspring behind the current labor movement – never lived under the authoritarian regime. Instead, they have experienced a long history of de-politicization. Industrial conflicts, social movements and the collective consciousness constructed through these processes are not sufficient to forge a sturdy class-based political movement,” Nugroho said.

“Moreover, cross-class interests as well as other identities such as ones based on religion are powerful rivals for the allegiance of workers,” he added.

The ILO’s Panjaitan also said that Iqbal’s KSPI is the only major union still opposing the new government wage decree and added that this makes it likely that fewer workers will participate in any labor demonstration later this year.

While the current environment may augur less public activity by some unions and smoother minimum wage formulation processes at the end of the year, Iqbal and the KSPI apparently have no intentions to roll over without a fight.

“We know that we are heavily criticized for most of our actions, such as large demonstrations and our persistent demands but I can ensure that the actions are all based on valid data,” Iqbal said, adding that he and his supporters refuse to remain silent.

The union movement will clearly continue to insist on making a noise, but numbers turning out on the streets are likely to continue to decrease. Until such time as economic growth picks up, many workers will acknowledge that pushing for large pay rises is unrealistic.


A version of this article was first published by Concord Review on June 23, 2016. Free trial subscriptions are available.

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