"Omnibus Law", Between Labor and Productivity

The government\'s plan to make a legal umbrella in the form of an omnibus law to improve the performance of the national economy seems to have triggered a debate in the community.

The omnibus law, which is expected to improve the investment ecosystem and competitiveness of Indonesia, has begun to be rejected by some people, especially the Omnibus Law on Employment Creation. One of the community groups that opposes the Omnibus Law on Employment Creation are labor/worker groups.

The Omnibus Law on Employment Creation prepared by the government includes 11 clusters from 31 ministries and related institutions, namely 1) Simplification of Licensing, 2) Investment Requirements, 3) Employment, 4) Ease, Empowerment and Protection of MSMEs, 5) Ease of Doing Business, 6) Research and Innovation Support, 7) Government Administration, 8) Imposition of Sanctions, 9) Land Procurement, 10) Government Investment and Projects, 11) Economic Zones.

Wages based on working hours

The cluster that has received the most attention from the labor group is cluster 3 (Employment). There are at least three main issues that are questioned by the labor groups related to this cluster, namely the plan for wage system regulations based on working hours, requirements for the recruitment of foreign workers and regulations on termination of employment and severance pay. These three drafts are strongly suspected to have a negative impact on the current level of labor welfare if the omnibus law draft is passed into law.

The regulation that determines the provincial minimum wage is Government Regulation No. 78/2015 on wages, which refers to Law No. 13/2003 on employment. Even though there were pros and cons, this government regulation was considered quite a fair regulation, both for employers and labor groups.

There are two dimensions in the wage determination formula contained in this government regulation, namely the safety net dimension and the incentive (bonus) dimension. The safety net dimension is formulated in the form of an inflation rate calculation that represents the level of purchasing power of labor groups.

Meanwhile, the second dimension is the incentive dimension in the form of economic growth. With this incentive dimension, the government tries to provide justice for workers. Profits that have been enjoyed by employers should be able to provide a trickle-down effect to workers, especially the level of welfare. Increased profits obtained by employers must also be enjoyed by workers so that workers get fair wages.

Read more : Demographic Bonuses, Minimum Wages and the Omnibus Law

KOMPAS/TOTOK WIJAYANTO

The omnibus law rejection poster was displayed when workers rallied to reject the Omnibus Bill on job creation in front of the Parliament Building, Jakarta, Monday (20/1/2020).

Although considered to have reflected an objective and comprehensive assessment, in the midst of increasing competition in the global labor market, the two dimensions contained in the government regulation are believed to be lacking. The productivity dimension is still not a variable used in the assessment of labor costs. Therefore, to improve the investment climate, the productivity variable must be included in the labor wage regulation.

One of the proxy variables used to assess the level of labor productivity is effective working hours. By including this productivity variable, the wage system will be felt to be far more equitable in addition to increasing the competitiveness of the national economy. However, for the government and labor groups, the addition of this variable of the level of work productivity can lead to new potential problems. According to Statistics Indonesia (BPS), as of August 2019, 28.88 percent of the population worked below normal working hours (35 hours per week), who might partly receive wages as full employment.

With the implementation of the wage system based on working hours, it is estimated that there will be a group of workers who have the potential to lose part of their income. In fact, so far this group belongs to the lower middle class economic group. Therefore, more detailed regulations are needed regarding the wage system. Do not let the new remuneration system cause new bigger problems.

Licensing and Foreign Workers

The second problem that gets attention from the labor group is the licensing and mechanism for the use of foreign workers, which is considered to make it easier for the entry of foreign workers into the Indonesian labor market. Actually, the problem of foreign workers is a classic and inevitable problem in the era of increasing economic globalization.

Since the implementation of the ASEAN Economic Community (AEC) in 2012, Indonesia has had to accept foreign workers without being able to make regulations or mechanisms that can prevent the entry of foreign workers from ASEAN member countries. In the initial stages of the implementation of the AEC, there were eight professionally educated labor professions that were opened freely. Educated workers from the eight professions can work in all ASEAN countries without any obstacles from the governments in each country.

The problem of foreign workers is a classic and inevitable problem in the era of increasing economic globalization.

The eight professions opened in the AEC are engineers, architects, medical personnel, nurses, dentists, survey staff, tourism staff and accountants. In the long run, the implementation of the AEC is aimed at opening up the entire profession of educated labor in all ASEAN member countries.

Therefore, Law No. 13/2003 can no longer be used as a legal basis for regulating foreign workers in Indonesia. The government\'s step in making the omnibus law, one of whose clusters is the regulation of the number, mechanism and qualifications of the foreign workers, is absolutely necessary. However, of course the regulation must pay attention to the interests of the national workforce. Do not let the existence of foreign workers harm the worker groups as a whole.

Read more :”Omnibus Law” and Tax Reform

KOMPAS/TOTOK WIJAYANTO

Omnibus law rejection banners were posted on the fence of the Parliament Building, Jakarta, when workers rallied to reject the Omnibus Bill on job creation on Monday (1/20/2020).

Layoffs and severance pay

The third issue that gets attention from the labor group is the layoff and severance regulations. Previously, the severance pay issue was regulated in Law No. 13/2003. The workers were worried about the loss of severance pay for those affected by layoffs. In the omnibus law draft that is distributed to the public, the term severance is changed into termination benefits. Layoff benefits are given at six months\' wages. In the previous regulation, workers were entitled to receive up to 38 months of wages.

However, based on the omnibus law draft that is distributed to the public, this severance arrangement seems to be more detailed. The provision of severance pay is based on the number of years a worker has worked. For example, for a work period of less than one year, the termination benefit obtained is one month\'s salary. For one or more years of work, but less than two years, it is two months of wages. Then for two years or more but less than three years, it is three months of wages, and so on. This specification is expected to provide justice for both employers and workers.

In general, the reason for an omnibus law is to cut, simplify and harmonize various laws and regulations that have been perceived as overlapping and hampering and damaging Indonesia\'s investment climate and competitiveness. This omnibus law covers 1,244 articles of 79 laws that are trying to be simplified so that they become a legal umbrella that can be flexible in responding to changes in the labor and investment sectors.

However, of course the making of an omnibus law must be directed toward the wider interests of the nation and the state. Do not let the ease of foreign investment damage the interests of the national economy. The entry of foreign workers into the Indonesian labor market may not create new unemployment for domestic workers. On the contrary, the entry of foreign workers must be able to create added value to the domestic workforce such as the transfer of knowledge, professionalism and integrity. If this can be done, then there is nothing to fear from the omnibus law.

Agus Herta Sumarto, Lecturer, School of Economy and Business, University of Mercu Buana and Researcher of Indef.