On 2021/11/25, Indonesia’s Constitutional Court pointed out to the government that there were flaws in the legislative procedure of the Job Creation Law (hereinafter, the Omnibus Law). It also ordered partial amendments within 2 years; if the amendments are not made, the Omnibus Law will be unconstitutional.
The Omnibus Law is a comprehensive labor law that came into force on 2020/11/2, about 1 year before this development, and it has faced criticism from workers at home and abroad on various fronts since then. Protests erupted across Indonesia, with opponents saying it threatens workers’ rights and environmental protection. In response, the government deployed security forces to intimidate protesters and dismissed the criticism as disinformation. Thus, the Omnibus Law has stirred controversy—centered on Indonesia—across labor, human rights, environmental, and other domains. In Indonesia, the fourth-most populous country in the world (※1), what is happening to workers?
Workers using sewing machines, Indonesia (Photo: International Labour Organization ILO / Flickr [CC BY-NC-ND 2.0])
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Labor conditions in Indonesia
What was Indonesia’s labor situation like leading up to the enactment of the Omnibus Law?
Indonesia was a Dutch colony from the mid-19th century until, after Japanese occupation, Sukarno (who later became the first president; term 1945 to 1967) and Mohammad Hatta (the first vice president) declared independence in August 1945. Full independence was recognized in 1949 after fierce conflict with the Netherlands. At the time, labor had significant influence and communism was on the rise, but a coup in 1965 upended the situation. Within a few months, as many as 100 ten-thousands of people were massacred by soldiers, police, and right-wing militias, and the Indonesian Communist Party was completely destroyed. Trade unions were effectively banned and the treatment of workers became harsh. Suharto then took power from 1968 to 1998.
Indonesia is an oil producer, and oil has been an important resource supporting its economy. In the 1970s, two oil booms (※2) increased oil revenues, and rapid economic growth was sustained in Indonesia until 1982. This was one reason that many jobs were created under the Suharto regime and the economy was put on track. At the same time, however, trade unions were suppressed and the rights of wage workers were neglected. In other words, employment existed but working conditions remained poor. 
Amid this, the influx of foreign companies became excessive and markets were flooded with products from countries like Japan, sparking riots among those dissatisfied with the situation in which national economic development seemed monopolized by foreign firms. The government shifted to policies favoring domestic companies, but as oil prices later fell and Indonesia’s external debt worsened, export-oriented foreign investment in Indonesia rose again.
Triggered by the Asian Financial Crisis in 1997–1998, sweeping political reforms were implemented and Indonesia’s economy contracted. Endemic corruption across government, bureaucracy, and other sectors also became a serious issue. With the Suharto regime’s centralized system, the government failed to respond appropriately to the crisis. Ultimately, in 1998, citizens exhausted by economic hardship and political corruption rioted, and Suharto resigned from the presidency. In the aftermath, the long-standing disadvantages faced by workers emerged as a critical issue. Based on the International Labour Organisation’s conventions and the Trade Union Law, in 2000 workers were granted the right to join unions and engage in collective bargaining.
Following this trajectory, a new labor law was enacted in 2003, during the presidency of Megawati Soekarnoputri (term 2001 to 2004). It improved conditions for workers, for example by increasing severance pay compared to the Suharto era. Conversely, it drew criticism from employers whose profits shrank. In response, President Susilo Bambang Yudhoyono (term 2004 to 2014) attempted to revise the law three times—in 2006, 2010, and 2011—but protests by workers thwarted these efforts. Under President Joko Widodo (term from 2014), however, Government Regulation No. 78/2015 on wages was issued in December 2015, bringing another shift disadvantageous to workers. The regulation restricted the authority of wage councils and local officials by requiring that minimum wages be calculated based on the inflation rate and GDP growth rate rather than through negotiation. Until then, unions could, for example, persuade local officials to side with workers and negotiate higher wages, but the regulation left no room for such bargaining.
In terms of actual employment, Indonesia created an average of 2.4 million new jobs annually over the 10 years from 2009 to 2019. However, with a large youth population and many new entrants to the labor market, job creation remains crucial. Although employment rates have improved, workers’ livelihoods are far from satisfactory. In 2019, as many as 68.6% of Indonesians lived on US$7.4 a day or less—the so-called ethical poverty line (※3).
Overview of the legal revisions
In this context, under President Widodo, the labor-related Omnibus Law was officially enacted on 2020/11/2. In February 2021, new government regulations were issued in succession to implement the law. Spanning over 1,000 pages, it comprehensively regulates labor and amended 79 existing laws. The Widodo administration argues that the law is intended to improve Indonesia’s investment climate and promote job creation. The aims include improving the country’s Ease of Doing Business ranking, encouraging investment, and increasing employment opportunities. The Ease of Doing Business ranking is a World Bank metric that ranks economies by business friendliness, including regulatory factors. Beyond the expected economic outcomes, it is also used as a reference indicator for doing business.
In practice, Indonesia’s labor rules were significantly changed by the Omnibus Law. Changes include extending the maximum period for fixed-term contracts and moving the rules and procedures for registration with local government manpower services online. The law also relaxes rules on outsourcing, expands overtime, and adds grounds for dismissal. On wages, it adopts minimum wages set by provincial governors rather than sectoral minimum wages, and severance pay has been reduced. Regarding days off, the mandatory weekly days off that companies must grant workers changed from 2 days to 1 day. In environmental rules, the requirement to conduct environmental impact assessments before obtaining business permits was relaxed. In other words, procedures to start a business were simplified while conditions relating to environmental risk were weakened. Standards to regulate investors in Indonesia are also weaker than before.
Backlash against the Omnibus Law
What, specifically, are the criticisms of these legal changes? As described above, the revisions allow employers more flexibility in managing labor issues and cutting labor costs, while for workers they create even more unfavorable working conditions. Accordingly, workers and some international bodies have raised various concerns.
First, regarding the lawmaking process, as the Constitutional Court noted, the government is criticized for failing to sufficiently engage in dialogue with the public when discussing the bill, and both the law and the process leading up to its enactment lack transparency. The draft law was not made public; in the aforementioned decision, the judges stated that “the Omnibus Law does not respect the principle of transparency enshrined in the 1945 Constitution.” With the draft undisclosed, it was difficult for citizens even to read the bill. In April 2020, trade unions pressed parliament to halt deliberations, but the bill was passed regardless.
Indonesians protesting the Omnibus Law (Photo: IndustriALL Global Union / Flickr [CC BY-NC-ND 2.0])
Next, the contents of the law raise concerns about exploitative impacts on workers’ hours and conditions. To block the Omnibus Law, labor groups and student groups have staged large demonstrations. For example, in April 2021 the Indonesian trade unions held a protest campaign against the law, with at least 1 ten-thousand union members participating across 150 cities and 1,000 companies. In October 2020, many people, including the Indonesian Student Executive Board, also joined demonstrations calling for the law’s repeal. In some areas there was unrest, and about 6,000 people were arrested.
International criticism has also been voiced. For instance, the International Trade Union Confederation (ITUC） stated that the law would reduce wages, weaken provisions on sick leave and other protections, and undermine job security.
There are also concerns that the revisions will accelerate environmental destruction. In fact, domestic groups including experts, unions, and students—as well as some foreign investors—have criticized the Omnibus Law on environmental grounds. Specifically, even if policies could harm the environment or society, it has become more difficult for ordinary citizens to deliberate and bring lawsuits. Under the law, only a small number of people deemed to be directly affected by a project can participate in environmental impact deliberations, raising concerns that local residents will lose the opportunity to voice their opinions as before. Moreover, since investment and related business activities in Indonesia are now harder to regulate than before, if investors attempt projects that could destroy Indonesia’s environment for private gain, authorities may be unable to curb them, potentially hindering environmental protection, it is argued.
Forest fires, Indonesia (Photo: CIFOR / Flickr [CC BY-NC-ND 2.0])
In addition, with the enactment of the Omnibus Law, the legal constraints that had prevented companies from using fire to clear forests are said to have been weakened. Indonesia has a long history of slash-and-burn agriculture, and transboundary haze and air pollution have been major problems. The legal changes are likely to further reduce Indonesia’s forests and increase greenhouse gas emissions. Beyond that, even global efforts mandated by international agreements on emissions reduction, such as the Paris Agreement, could be jeopardized. Looking ahead, this could significantly undermine the attractiveness of the Indonesian market itself.
Furthermore, the National Human Rights Commission stated that “the politics under the Omnibus Law carry a discriminatory nuance” and “further guarantee the interests of certain groups while denying the right to equality before the law.” People with disabilities were not invited to the deliberations in the first place. The law also continues to use the condition “physically and mentally healthy” for certain jobs and roles, which can restrict people with disabilities from entering the labor market. Under Article 154A on termination of employment, employers may dismiss an individual if they become disabled. Moreover, the use of terms in the law that can be seen as discriminatory has also drawn criticism. The word “cacat” is a derogatory term that devalues the social status of people with disabilities, and its use can be said to violate rights guaranteed by Indonesia’s Constitution.
The present and the future
Going forward, Indonesia must not aim for economic “growth” based only on GDP or the number of employed while exploitation of workers persists, but rather consider how to ensure equal development that respects citizens’ rights. Reynaldo G. Sembiring, executive director of the Indonesian Center for Environmental Law (ICEL), remarked that “the Omnibus Law is not only a big problem in itself, it also triggers other measures.” To achieve its policy goals of raising the Ease of Doing Business ranking and increasing investment and job opportunities, the government may continue to pursue unequal changes through regulations and other laws.
Indonesia’s Constitutional Court (Photo: Francisco Anzola / Flickr [CC BY 2.0])
On the other hand, the Constitutional Court’s ruling mentioned at the outset was a major development for workers. Said Iqbal, head of the Indonesian trade union confederation, said it was “a very bold move” for the Constitutional Court to side with workers and order the government to revise the law. According to the coordinating minister for economic affairs, the Indonesian government respects the ruling and will implement the court’s instructions as much as possible. Despite various difficulties, the momentum of legal revisions was halted, contrary to the government’s aims. We should continue to watch for new moves toward legal amendments.
※1 As of 2020, Indonesia’s population is about 270 million. The countries with the largest populations are China, followed by India and the United States.
※2 The first was triggered by OPEC reducing oil exports and raising prices; the second by the temporary shutdown of Iran’s oil industry due to the revolution, which cut supply.
※3 At GNV, instead of the World Bank’s extreme poverty line (US$1.9 per day), we use an ethical poverty line (US$7.4 per day). For details, see the GNV article “How should we interpret global poverty?”.
Writer: Aoi Yagi
Graphics: Aoi Yagi
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