| Human Resources in Indonesia By Ames Gross Summer 1997 By Pacific Bridge, Inc. | |||||||||||||||||||||||||||||||||||||||||||
| Overview Over the past several years, Indonesia’s economy has experienced rapid growth. Indonesia increased its per capita GNP 1000% between 1967 and 1993 – from $70 to $700. (1) Indonesia ’s robust economic growth was initially stimulated by its government policies. In 1986, following a sharp decline in oil prices, the government initiated a structured deregulation package. The package allowed the government to stabilize and adjust the Indonesian economic structure through the use of strict fiscal policy, deregulation and institutional reform. As a result, Indonesia experienced a boom in both domestic and foreign investments that propelled the economy on a path of rapid export-oriented labor-intensive growth.(2) Employment Trend Rapid economic development has fundamentally altered the structure of Indonesia’s labor force over the past two decades. In 1971, less than 40% of Indonesian labor worked in the industrial and service sectors, while over 60% worked in the agricultural sector. However, as members of the Indonesian workforce moved away from agriculture and towards trade and manufacturing, this distribution changed dramatically. By 1990, only 54.8% were employed in the agricultural sector, showing a progressive decrease in agricultural workers. Of the remaining workers: 14.7% were working in trade, 13.1% were engaged in service industries, 11.4% were involved in manufacturing, and the remaining individuals were distributed in other industries.(3) The dramatic economic growth also altered the gender composition of the workforce, as the need to improve family economic conditions induced an increasing number of women to enter the workforce. The following table illustrates this trend: Table 1. Number of Workers Employed in Manufacturing in Indonesia by Gender, 1982-1990
Source: Indonesia Labor Market Policies and International Competitiveness, The World Bank, Sept. 1995. Another impact of the foreign and domestic investment boom was an increase in working opportunities, which in turn led to an elevation of the employment rate.(4) Between 1971 and 1990, employment increased from 37.6 million to 71.6 million, while unemployment decreased by 1.3 million within the same period of time. (5) The size of the Indonesian labor force increased from 41.3 million in 1971 to 82.2 million in 1993.(6) In 1995, the US Commercial and Information Center in Jakarta estimated that 75% of the 83 million people in the labor force are between the ages of 15 and 34.(7) Furthermore, the center noted that the labor force is thought to be growing at about 2.8% per year despite the fact that population growth has declined to 1.7%.(8) At the current labor force growth rate, developing and creating adequate employment opportunities has become one of the most pressing priorities facing the Indonesian government. In addition, Indonesia is experiencing shortages of valuable managerial and professional personnel. Acquiring the Best Employees The existing skilled management personnel in Indonesia are well aware of the demand for their services and tend to charge accordingly. A number of companies cope with the shortage by importing staff, although the process can often be significantly more expensive. When a company hires an expatriate, it must consider a variety of costs – housing, schooling for dependent children and health insurance – as well as other benefits, such as a car with driver. In addition, the Indonesian government limits the number of work permits granted to expatriate staff. (9) Another tactic used by many multinational companies in order to overcome the shortage of skilled managerial employees is the development of qualified local staff through in-house or on-the-job training. However, this process can be expensive and there is always a possibility that competitors will lure away the trained employees. For growing local companies, pirating staff from multinational companies offers a quick and easy solution to the need for management and professional staff. Pirating has helped local companies to get the level of education they need from their candidates, as many multinational companies maintain a strong reputation for good in-house training. In addition, pirating may also occur among multinational companies themselves. Many of these cases arise when a professional asks for a higher salary than the initial company can afford to pay. Recruiting Indonesian students who study overseas is another option for companies to cope with the shortage of skilled personnel. In the United States, the recruitment is usually done through Home Country Placement – a program conducted by Northwestern University in Boston as part of its “Cooperative and Education Service.” This center receives requests from more than 400 major Indonesian and US companies daily; the inquiries are then matched with student profiles. The center also assists the US Indonesian Student Association (PERMIAS) by hosting an Indonesian Job Fair each year. Recruiting recent Indonesian graduates from overseas universities has provided employers the opportunity to recruit the best employees straight from university. The Indonesian government readily acknowledges that training a sufficient number of skilled workers to meet the growing demands of the rapidly moving economy is one of the greatest challenges facing Indonesia. The government further understands that the failure to develop the essential manpower skills to maintain economic growth could result in the loss of economic opportunities and an inability to compete internationally.(10) Human Resources Development Aware of the need for human resources development, the Indonesian government has made a concerted effort to make development a high priority and to improve the quality of human resources. In its Repelita VI five-year development plan, the primary goal of human resource development in Indonesia is “to increase the capabilities of each individual and thus all of Indonesian society as a whole.” Furthermore, “This will be reflected in religious beliefs, improvements in physical and mental health, development of knowledge and skills, increased adherence to a productive work ethic, a sense of national responsibility, and increased awareness and understanding of the importance of preserving natural resources and the ecosystem. Other goals include the development of a sense of self-reliance, development of leadership and entrepreneurial skills, and an increased number of national development cadres who have patriotism, perseverance, initiative, discipline, social awareness and awareness of their rights and duties.” (11) Indonesia’s policymakers are now redefining the role of the government, from being the sole provider of education to the catalyst for stimulating private-sector training programs, including employer-sponsored schools, vocational centers, and polytechnic schools. (12) According to the World Bank, the higher education system in Indonesia has grown rapidly during the past 20 years. General education gains, investment in a wide range of training facilities and various forms of on-the-job training has improved the skill level of Indonesia’s labor force. Skills training is provided either through senior vocational high schools, which account for 27% of upper secondary enrollments, or through public training centers that offer short specialized courses in targeted disciplines. (13) As part of the government’s effort to improve the quality of human resources, it implemented the “Nine Years Compulsory Education Program” in 1994. The program is an extension of the previous six-year compulsory education program that the government originally launched in 1984. In the new program, children between seven and 15 years of age are required to attend school for nine years, including six years of primary education and three years of intermediate education. Despite the existence of this program, 76% of the total workforce in 1994 only possessed a primary educational background. Beginning in January 1997, the Indonesian government will impose a US $100 levy on every expatriate in order to establish a skills development fund to help local professionals. In addition, companies in the financial and manufacturing sectors must pay compulsory training levies to equip Indonesians with the skills necessary to do the work currently performed by expatriates. In 1996, a US $20 million loan from the World Bank was used to finance a US $25 million Social Sectors Strategy and Capacity Building Project. The main objective of this project is to strengthen Indonesia’s efforts to sustain high income growth rates and poverty alleviation, improve the quality of social sector services, assist with the transition towards decentralization, and enhance the development impact of investment.(14) In the same year, the Asian Development Bank also gave a US $80 million loan to Indonesia to upgrade technology capabilities of Indonesian industries. (15)
Building Working Relationships with Indonesians According to Bruce Gillespie, chief consultant of Wings of Eagles, a program that has conducted many in-house training programs in Indonesia, building positive relationships with Indonesians is easy as long as you are honest, open and sincerely interested in each person as an individual. Furthermore, Gillespie commented that consultants, experts and mentors must be adept at building relationships in the same way that Indonesians build relationships - with sincerity, warmth and commitment.(16) Indonesians love to learn. The company can stimulate its employees by giving sources of information for those employees who wish to further develop their expertise. Another useful technique is to provide numerous learning challenges in actual daily work. Follow-up action is important, since it demonstrates that the management staff cares about the ability level of their staff and lets the employees know that their work is important. (17) Indonesia is a country ingrained with strong cultural traditions. Therefore, it is crucial for a company to consider cultural values in order to be successful in Indonesia. For example, religion is an important part of Indonesians’ everyday life. Muslims need time for their everyday prayer, while Hindus (especially in Bali) have a specific daily schedule for religious rituals. In addition, when a company is planning to provide a cafeteria at employee’s facility, the company should be aware that meals must be prepared in a accordance with Islamic traditions.(18) Another cultural tradition that Indonesians value is harmony and consultation leading to consensus. Lastly, Indonesians tend to confront issues in an indirect manner as an adherence to Indonesian concepts of politeness and aversion to embarrassment. (19)
Employees’ Wage Rate and Benefits Citibank advises foreign investors “it is unwise to see Indonesia as a nation which can provide profit merely by virtue of its cheap labor.” However, Citibank also noted that major foreign companies report that Indonesian workers’ quality and productivity can be as high as elsewhere as long as the company provides the workers with reasonable wages, a good working environment and a positive channel of communication between management and workers.(20) In Indonesia, the Ministry of Manpower regulates the minimum wage rate, or the lowest basic wage including permanent allowances. The minimum wages are fixed by calculating the level of “minimum physical need” (KPM), costs of living and labor market conditions. The minimum wage level is calculated for each region, and differs according to location. (21) Indonesia first introduced its minimum wage legislation in 1989. Since then, the government has continuously increased the minimum wage level to meet the changes in KPM figures. As a result, the minimum wage rate in several regions is now equal to the KPM.(22) In April 1996, the government increased the minimum wages by an average of 10.63% per region. The daily minimum wage for the Jakarta area was increased from Rp 4,600 to Rp 5,200 per day or Rp 156,000 per month.(23) The minimum wage rate does not include the overtime wage rate, which is 1.5 times the hourly wage rate for the first day and two times wages per hour for the following days. The overtime rates on public holidays differ from the overtime rate on regular days. Pregnant and young workers may not participate in overtime. In September 1994, the Ministry of Manpower issued a decree that requires all companies to pay a 13th month of salary – basic salary and fixed allowances – timed with major religious holidays. As of 1993, the monthly wage rate was Rp5 million (US$2,430) for managers, Rp2 million (US$971) for executive staff, Rp500,000 (US$243) for clerical staff, Rp400,000 (US$194) for skilled labor and Rp200,000 (US$97) for unskilled labor.(24) Nevertheless, The World Executive Digest reported that Indonesia’s executive salaries in 1995 were still lower than those in most other ASEAN countries. The aforementioned reported salaries do not account for various benefits paid by the company which may include taxes, car with driver, credit cards, executive club membership, transfer fees, etc. Overall, the difference in the total salary package might not be as great as it appears.(25) Table 2. Indonesian Executive Salaries (in millions of Rupiah per month after tax) by Industry
Source: Executive Salaries, Indonesia Business Center Online, www.indobiz.com. In 1978, the government established the Manpower Insurance Program (ASTEK) for civil servant employees. The government broadened the scope of the program in 1992 so that it would also cover employees in private sectors.(26) The new program was enacted through Law Number 3 of 1992 that is known as JAMSOSTEK. Initially, companies that employ more than 10 persons or have a payroll of at least Rp1 million per month are obligated to participate. However, companies that already offer superior benefits may choose not to participate in the program. The law covers life insurance benefits, retirement funds, free health care for workers (including spouses and up to three children), and compensation for work-related accidents and illnesses. The employer’s contribution and 2 percent of employee’s wages provide funds for the program for the retirement fund. PT ASTEK, a state owned enterprise, is responsible for administering the program.(27)
Regulations(28) Besides regulating the minimum wage and detailing the employee’s insurance program, the Indonesian labor law delineates the regulations for standards of working conditions, the formation and rights of unions, and rules in employing expatriate staff. The minimum age for employment in Indonesia is 15 years old, while the maximum workday is 7 working hours per day or 40 hours a week. Working hours may be extended to 9 hours a day, 54 hours a week with overtime pay. The regulation further stipulates that employees will receive at least a half-hour rest after 4 successive hours of work as well as 1 day of rest per week. The single rest day per week can be changed into 2 rest days per week given an agreement from workers regarding an 8-hour workday. Annual leave entitlement for all Indonesian workers is 12 days a year. After six years in the same organization, a worker is further entitled to three months leave. Female employees may not be obligated to work on the first and second days of their menstrual periods. Although the official length of maternity leave is 1.5-3 months before and 1.5 months after birth, the law allows for a maximum three-month extension before the expected date as long as a medical certificate accompanies the request. A trade union at any level must register with the Ministry of Manpower. Furthermore, unions must be registered in order to enter binding negotiation contracts at any level. Collective labor agreements by “independent” unions beyond the plant level are still effectively impossible. Although termination of employment on the basis of establishment of union membership is not permitted, the law allows a company to fire any worker who does not show up for work for 6 consecutive days without a valid explanation. The Ministry of Manpower may also require that an employer extend negotiated benefits to non-union employees in an establishment. Furthermore, the ministry can decide whether part or all of a collective labor agreement can be applied to other employers/employees in the same field of activity. The settlement of industrial relations disputes must go through several stages, such as bipartite negotiations, mediation by a Ministry of Manpower official and settlement by regional and central committees. Central committee decisions are binding unless nullified by the Ministry of Manpower. Workers may strike only if negotiations with an official fail or if the employer refuses to negotiate. They must notify the employer and the Chair of the Regional Committee of their intention to strike, and may only strike after the Chair has acknowledged the receipt of notification (usually within 7 days). A strike must be suspended if there is an official inquiry. The unionization process has been slow, due to Indonesian society’s lack of familiarity with trade union practices. Although approximately 40% of the labor force is unionized, the Hong Kong and Shanghai Bank estimates that active membership is only around 5-10%. Currently, Indonesia has only one recognized union, the All Indonesia Workers Union (Serikat Perburuhan Seluruh Indonesia - SPSI), an organization that is further differentiated into industry-based sections. The government has insisted that an SPSI branch should represent organizations with more than 25 employees. According to Citibank, the government took this action in response to outside pressure from overseas. Many critics question the effectiveness of SPSI as the employees’ representative, since factory managers often appoint branch union officials. In addition, since negotiations are typically based on Indonesia’s preferred consensus system, workers charge that the results are often biased against them. In the past, this has led to a large number of strikes occurring without prior notification to the Ministry of Manpower. Strikes usually relate to employers’ failure to pay the minimum wage, denial of benefits, poor working conditions, and the termination of employees without just cause. If a company elects to employ expatriate staff, it must conform to regulation number 4, which requires the company to submit a training plan for Indonesian nationals. The goal of this training plan is to educate and train Indonesian nationals to later take over positions currently performed by expatriates. In most manufacturing industries, blue collar and supervisory level positions are closed to foreign workers, while there is three-year limit for technical staff. In other sectors such as export marketing, tourism and consultancy, work permits are not difficult to obtain. For all positions, a sponsorship letter is required from the company or government agency. Foreign investors who are going to set up an office in Indonesia must submit a manpower plan to the Investment Coordinating Board. Foreign investors are allowed to fill director positions in capital investment companies in direct proportion to the foreign shareholding for such companies. Expatriate employees enter Indonesia on a business visa that can later be transferred to a one-year temporary residency visa (KIM-S). This visa must be renewed each year with a new letter of sponsorship. Dependents of the aforementioned expatriate employee may enter the country with a social and cultural visa. The process of obtaining the KIM-S (one-year temporary residence visa) is long and arduous. As a result, many companies prefer to employ an agency to handle the work permit application process. Currently, the Indonesian government is drafting a new labor law that will review the procedures relating to employment of expatriate staff. With unemployment at 7.24% in 1995 and as many as two-thirds of local graduates unable to find jobs, the new law will attempt to reduce the number of expatriates in the country. (29)
Conclusion The rapid growth of Indonesia’s economy is expected to continue well into the next century. The government has been stimulating economic growth by deregulating previous laws in order to entice investors. New investments will mean new working opportunities that are badly needed to accommodate the growth of Indonesia’s labor force. Simultaneously, Indonesia is experiencing a shortage in managerial and professional personnel. Therefore, further investment in human resources is still needed to allow Indonesia to retain its international competitiveness. In answer to this challenge, the government has continuously improved the Indonesian educational system and human resources development as well as the labor law.
End Notes
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Selasa, 30 September 2008
Human Resources in Indonesia By Ames Gross, Summer 1997, By Pacific Bridge, Inc.
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