Indonesian Workers Demand an End to Outsourcing

By : webadmin | on 8:20 AM October 04, 2012
Category : Archive

SP/Fuska Sani Evani, Bayu Marhaenjati & Arientha Primanita

Around two million workers took to the streets across Indonesia on Wednesday, demanding that the outsourcing employment system be abolished and for companies to guarantee that all workers receive benefits.

Questions, though, linger over the fate of the current 16 million outsourced workers.

According to some industry players and analysts, outsourcing has enabled them to cut labor costs while benefiting the country as a whole, including the laborers themselves. They point to the system that has employed 16 million people, creating a multiplier effect by boosting consumption and production levels in Southeast Asia’s largest economy.

They believe outsourcing has become a necessary global trend for companies, including those in Indonesia, to survive current economic challenges. Outsourcing refers to the hiring of workers on a contractual basis through a provider. The workers are usually hired on short-term contracts and paid a daily wage, without fringe benefits.

Instead of abolishing outsourcing, which could result in the layoffs of millions of workers, business players said the government must guarantee that workers get fringe benefits, including health insurance, even as outsourced and contract laborers.

“The source of all these strikes and demonstrations is the labor law and the government’s inability to monitor and implement the law,” said Sofjan Wanandi, chairman of the Indonesian Employers Association (Apindo). “Outsourcing is allowed and regulated by law, but there have been many violations in its implementation.”

Edimon Ginting, the Asian Development Bank’s senior economist for Indonesia, agreed that outsourcing is not necessarily bad, as other countries such as India and the Philippines have been using it to create new jobs.

“Today, for instance, call centers worldwide are dominated by the Philippines and India, since both countries excel in English,” Edimon said.

The rejection of the outsourcing system in Indonesia, he said, stemmed from obscure regulations, particularly in labor law, that prompt both employers and employees to interpret the law based on their respective interests.

According to government data, Indonesia has 16 million outsourced workers, or roughly 40 percent of the country’s formal labor force of 41 million.

Under the 2003 labor law, companies are not allowed to outsource core jobs and can only outsource five types of peripheral work, namely cleaning services, security, driving, catering and work relating to support mining.

However, Manpower and Transmigration Minister Muhaimin Iskandar admitted that many companies outsourced most of the workers, including for their core business.

“We will verify each outsourcing company to determine whether they violate the law. If we find violations, we will revoke their permits. We have asked governors and district heads to verify all the outsourcing companies in their respective areas,” he said.

Regarding labor’s demand for benefits, Muhaimin said that his office will mediate meetings between employers and labor unions to solve the issue.

Analysts and business players, however, said that the country cannot solve its labor problems without fixing its labor law, which from the beginning has invited a string of criticism, with some calling it a stumbling block in the country’s ambition to attract more investment, create more jobs and become one of the world’s 10 biggest economies by 2025.

Foreign businesses and officials have complained that the law is too strict and does not allow flexibility for either employees or employers to end employment contracts, a main obstacle for manufacturers and other foreign direct investors to increase their investments.

They said the law requires high severance pay and makes it difficult to fire staff, pushing many of them to choose outsourcing and contract systems.

“The outsourcing system enables companies to be efficient. Many just cannot afford to have permanent employees,” said Edimon.

Fahmi Idris, advisory board chairman of the Indonesian Chamber of Commerce and Industry (Kadin), said that changing the labor law would attract more investments while allowing companies to gradually hire well-performing contract workers as permanent staff, which would guarantee fringe benefits. “They don’t have to worry about costs and difficulties in hiring and ending employment agreements. So, while business is good they can hire more and when it slows down they can make themselves more efficient,” he said.

Mooryati Soedibyo, a member of Kadin’s advisory board, said that the government catering to the interests of both employers and employees should be balanced.

“Let’s create a win-win solution, where businesspeople can be given room to do business. Please, don’t just push around the businesspeople. I think we can realize [the workers’] demands to increase their welfare,” she said.