Globalization and Manpower

1
Globalization and Manpower
Updating Kebijakan Ekonomi dan Publik Indonesia
Where Do We Go? Yogyakarta, March 17, 2007

• Sari Sitalaksmi

2
Globalization in Indonesia

• Transformation from a closed and protected regime
  to a more opened policy in trade and investment
• Economic restructuring by diversifying the trade
  sector away from heavy dependence on oil
• Since 1997 large extent of deregulation in trade
  and distribution in agriculture, elimination of
  certain protection and trade privileges in
  manufacturing, and further liberalization in
  telecommunication and financial services
• Indonesian accession to free trade agreement
  APEC, WTO, AFTA

3
Pre-1997 Trade Liberalization in Indonesia
(Pangestu 1996)

• Phase 1 (1966-1972) stabilization and
  rehabilitation
• Law on foreign investment in 1967
• Further procedure simplification and deregulation
• Phase 2 (1973-1981) - protection
• Liberalization was halted
• Import substitution strategy
• Emergence of new SOEs
• Phase 3 (1982-1985) export orientation
• Phase 4 (1986-1997) further trade
  liberalization
• Deregulate tariff schemes and reduce non-tariff
  barriers
• Rapid economic growth (1987-1992)
• Initiate privatization

4
Current development

• Further deregulation and reduced tariffs
• Drafting a New Investment Law yet process for
  approval has been protracted to date
• Development of Special Economic Zone (SEZ)

5
The Performance of International Trade FDI
(Ismalina 2007)

• high dependence on imported raw materials
  components
• low value-added generated in resource-based
  industries
• a virtually non-existent capital goods sector
• limited range in export products and markets
• low productivity small and medium industries
• weak human resources capability technology
  support system
• weak manufacturing capabilities of domestic firms
• Low FDI potential and low FDI performance in 2004
  yet FDI jumped by 177 in 2005 to 5.3 billion
  (mainly due to the acquisition of Sampoerna by
  Phillip Morris) (WIR-UNCTAD, 2006)

6
Manpower Assets or Liabilities?

• transformation from repressive to democratic
  environment
• believed to be one of the constraints for
  investment
• the impact of privatization and firm closures on
  workers redundancy
• General Manpower Issues
• Law on Manpower (13/2003)
• reluctantly accepted by employers and workers
• Initiatives for revision widely rejected
  (articles on outsourcing, severance pay)
• Law on Industrial Dispute Settlement (2004)
• Emergence of labor activism
• Law on Trade Union (21/2000)
• Widespread labor unrest (i.e. May Day 2006)

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Selected Labour Indicators

• Source Sakernas (2006) Key Indicators (ADB
  2006)

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Employment

• Source Sakernas (2006) Key Indicators (ADB
  2006)

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Real and Nominal Minimum Wage (1990-2002) Inter-Pr
ovincial Average Wage
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Industrial Relations
Selected IR Indicators

• Source Ministry of Manpower (2006)
• ILO World Labour Report 1997-1998

11

• Source Ditjen Industrial Relations, Ministry of
  Manpower (www.nakertrans.go.id)

12

• Source Ditjen Industrial Relations, Ministry of
  Manpower (www.nakertrans.go.id)

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Case Study An Apparel Company

• Seasonal, job order orientation
• Export oriented, imported raw material
• Number of employees 1900
• 1800 female, 100 male
• 900 contract, 1000 permanent
• Less developed trade union led by HR staff
• The Impact
• Forced to move to middle-class product markets
  due to the erosion of its lower-class market by
  India China
• Job order-based work contracts
• Low job security
• Contracts are discontinued close to 3-years yet
  could be rehired
• Acceptance to implicit repression on workers
  activisms

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Case Study 2 A Textile Company

• Ownership 59.35 (state) and 40.65 (private)
• Number of employees 1072 (virtually all male)
• Real paygtgt provincial minimum wage 0 turnover
  rate
• 25 cost of production labor
• Quite comprehensive benefit schemes (health,
  transportation)
• Association with a single trade union built
  networks with sector trade union
• The Impact
• More exposed to international cotton trading
  (US-driven)
• Stiffer competition in Japanese market eroded
  by China and Vietnam ? move to upper segment
  market
• Profit margin decrease since 2 years ago ? higher
  pressure to increase efficiency ? intensified
  work shifts (increased hardship) led to the
  first labor unrest
• Overqualified labors

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The Impact of Globalization on Manpower

• Increased wage in some areas
• Ex. wage premium in 90-99 (Harrison Scorse
  2005)
• Foreign-affiliated mfg pay 5-10 to unskilled
  workers
• Foreign-affiliated mfg pay 20-35 to skilled
  workers
• Job Security
• Increased insecurity (i.e. risk of job loss in
  protected industries SOEs, increase preference
  for contract workers)
• Job creation
• FDI (i.e. in SEZ)
• Demand for higher labor hardship
• Various reactions of workers and trade union
  activism

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Recommendations

• Accelerate the ratification of Law on Investment
  by accommodating the needs and interests of both
  business and workers
• Refinement of Law on Manpower better protection
  to vulnerable workers
• Better implementation of other manpower-related
  regulations (i.e. dispute settlement, social
  security)
• Better coordination in the state agency level to
  resolve labor conflict in the regional level