The Omnibus Law – a Labor Nightmare

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Bhima Yudhistira Adhinegara INDEF Researcher

IO – The Work Creation Omnibus Law draft has recently been debated in a public forum. The discussion of the draft is in the context of the fact that it is completely confidential, not participatory – and its contents are predicted to be in favor of the interests of oligarchs who are married to power. In the draft received at the Parliament, doubts arise whether this work creation is intended to enlarge employment creation opportunities, as the Minister of Manpower claims. If so, then what kind of workforce is the dream of the Omnibus Law?

The Omnibus Law doesn’t only talk about licensing, but also talks about specific clusters related to employment. It is not at all a surprise; many articles are problematic when viewed in detail. For example, the ease of working for foreign workers in startup companies is listed in Article 42. If the reason that digital talent in Indonesia is still lacking, then the solution is not by bringing in foreign workers but rather creating an education system that suits startup needs. Sadly 50,000 computer science graduates per year will have to compete for jobs with foreign workers.

Reading other articles makes Indonesian workers bitter. Outsourcing practices are not demarcated, whether core workers or non-core workers. That is, companies can easily replace permanent workers and send away jobs to outsourcing companies. This unclear boundary creates job insecurity.

Another issue is related to the increase in the minimum wage that only uses the formula of regional economic growth. Some regions are developed; other areas reveal negative growth. This means that the minimum wage may fall if regional economic growth is negative. The function of the minimum wage is to protect the purchasing power of workers, but the Omnibus Law perverts it.

In the Agriculture cluster, there is a strange article related to the position of imports, which is equated with national production and reserves, whereas in the Farmers Protection Act, imports are prohibited unless national production and reserves cannot meet domestic needs. Imports are seen as a last measure – that’s the formula. Now in the Omnibus Law, it is reversed, positioning imports equal to production means that the import tap can be opened as freely as possible even when production is sufficient.

All the fuss is indeed the fate of workers, especially Millennials who want to work in startups invaded by foreign workers, want to work in factories whose labor is extorted, want to work in agriculture defeated by imports.

The results of the JETRO (Japan External Trade Organization) study in 2020 revealed it was not only businesses in Indonesia who complained about wages. Even in Singapore, Malaysia, Thailand, Vietnam, the number one complaint from the business side is about wage increases. Indeed, by nature businesses, especially in the labor-intensive sector, want to keep wages depressed, paying as little as possible. Another article was later inserted in the Omnibus Law stipulating that the minimum wage for labor-intensive sectors will be determined separately.

But is it true that competitiveness is determined solely by wages? Based on the APO (The Asian Productivity Organization) database in 2019, there is a contradiction in which the level of productivity of workers in Indonesia reaches 26 thousand USD, far higher than those in Vietnam, Cambodia, and the ASEAN average. Vietnam alone is only 11.1 thousand USD and the ASEAN average is 25 thousand USD. Employers may depress wages, sometimes even lightly comparing the wages of Indonesia and Vietnam. But it should be noted, there is also quality. Worker productivity in Vietnam is no better than that in Indonesia.

The more serious problem in terms of competitiveness lies precisely with ICOR (Incremental Capital Output Ratio). Indonesia has ICOR above 6, indicating that investing in Indonesia is inefficient. One of the main factors is the cost of logistics, which grabs 24% of the total economic pie itself. Much infrastructure is built but not well-targeted, nor correlated with the interest of reducing logistics costs.

Investment in Indonesia is also wasteful from small extortion to big money extortion. The Corruption Eradication Commission (KPK) has been weakened. Yet according to the World Economic Forum, the biggest obstacle to business is corruption, and why does the Omnibus Law not have a firm codicil for fighting corruption? How strange.

Indonesia should not be ashamed of Singapore or Malaysia but of Rwanda. This small country in Africa, which just finished a civil war in 1994, was ranked 38th out of 190 countries in the 2020 edition of the Ease of Doing Business, while Indonesia was still stalled in 73rd place. To process an export document takes 30 hours in Rwanda, while Indonesia needs 61 hours, twice as long.

Of many factors, Rwanda’s commitment to eradicating corruption correlates with the ease of running a business. Rwanda’s Corruption Perspective Index ranks at 51; strangely, Indonesia is proud at position 85. If you want quick licensing, you don’t need to talk about revolution 4.0 or want to change state employees into robots. Rwanda gave an example to do it. Indonesian bureaucrats should have a comparative study to Rwanda, not to Australia or Singapore.

Investment performance in the Jokowi Era is indeed not exactly bad. But the debate does not lie in the nominal investment, but rather about how much labor absorption is created from incoming investment. This question is easily answered by comparing the quality of labor absorption per one percent of economic growth. In the first SBY era, 1% of economic growth was able to absorb 467,000 workers. In the Jokowi Era, unfortunately, 1% of economic growth absorbed only 426,000 workers.

The labor absorption is weak because the service sector, including trade and financial services, is always given preferential treatment. Of total FDI investment coming in 2019, 57.5% is in the service sector. In the Omnibus Law, although there are many issues related to manufacturing and special economic zones, articles related to agricultural clusters are very disturbing. If imports are preferred, we will end up with the same formula. The quality of labor will decrease. Investment will break away from the manufacturing sector, turning warehouses into piles of imported goods. Import companies are happy if the Omnibus Law is passed. Thus, the initial goal of creating new jobs will be contradictory.

So, it is clear that the dream of creating a superior quality workforce, and taking advantage of the demographic bonus opportunity is certainly not to be realized in the draft Work Creation Omnibus Law. Bad investments shall be lured into Indonesia, selling natural resources cheaply, exploitation of workers at low wages, plus castrated environmental aspects. The results are complete, Omnibus Law is the latest product from the same oligarchy. With common sense in mind, it is fitting for the Omnibus Law not to waste time discussing it in the Parliament. Return the script to the government, tell them to relearn what is the meaning of proper, intelligent economic growth and investment.