Federasi Serikat Pekerja BUMN Bersatu

Other union leaders I spoke to agreed. ‘At the end of the day, we may have to go on strike,’ said Mr Saepul Tarip of the Organisasi Pekerja Seluruh Indonesia (OPSI).

But will the unions be able to force the government of President Susilo Bambang Yudhoyono into another embarrassing climb-down in its attempt to make employment conditions more investor-friendly? A closer look suggests they may not.

The latest dispute arises from yet another effort by the government to roll back the effects of a 2003 labour law, seen by observers as an obstacle to new investment. The legislation, passed during Ms Megawati Sukarnoputri’s presidency, sets out detailed rules on housing and medical allowances, industrial action, contract work, sabbatical leave and dismissal.

But it is chapter 156 of the law, which mandates severance payments according to a set formula based on length of service with a company, that has been the most controversial. These payments have reportedly discouraged businessmen from responding to market forces by hiring new workers because of the heavy costs involved in dismissing them should market conditions change.

Employers also say they want greater outsourcing flexibility and the ability to sack workers taking part in illegal strikes without having to fork out severance pay.

The severance payments - among the highest in the region - can amount to 30 times a worker’s monthly wage. And they are payable even if an employee has been dismissed for criminal conduct. Not surprisingly, employment growth in the manufacturing and service sectors has been especially sluggish in recent years despite continued economic expansion.

The overall cost to the economy is difficult to calculate, but Indonesia may be losing the chance to lure foreign manufacturers away from China, where wage costs are rising. Already, investors seem to be opting for countries like Vietnam, where wages are lower, productivity is high and the labour market is more flexible.

Changing the law, however, has been politically difficult. Trade unions staged mass demonstrations in Jakarta in May last year when the government announced its intention to revise the legislation. The proposed reforms were later dropped.

This time around, the government has decided to address the severance pay issue by introducing special regulations setting up an insurance system. Employers are to pay 3 per cent of the gross monthly salaries of their workers into a labour dismissal benefits fund to be managed by organisations such as state-owned insurance company PT Jamsostek. The regulation will apply to workers with monthly incomes of up to 5.5 million rupiah (S$895).

Employers must now pay 11 per cent of their workers’ monthly salaries for social, health and pension plans to Jamsostek.

The objective of the new scheme is to find a compromise between the needs of employers to reduce the cost of severance and the demand by unions to maintain income security for dismissed workers. In the past, some financially strapped companies have simply refused to pay up, prompting unions to accuse the government of lax law enforcement.

The main beneficiaries of the proposed change are workers in the textile, garment and leather manufacturing sectors, where monthly salaries are rarely higher than one million to two million rupiah a month.

But blue-collar unions have given the scheme a lukewarm reception, worrying that by making dismissal easier, the new system could result in widespread layoffs. They also question the ability of Jamsostek to handle the funds properly, citing the history of mismanagement in state-owned firms.

The most vocal opposition, however, has come from white-collar unions such as BUMN and OPSI. These unions, which represent higher-income workers, resent the fact that severance pay under the new arrangements would be calculated based on a monthly maximum of 5.5 million rupiah.

‘The new system is discriminatory,’ says OPSI’s Mr Tavip. OPSI represents banking and other service sector employees.

But Manpower and Transmigration Minister Erman Suparno is unmoved. ‘It’s unfair to provide protection for white-collar workers, particularly managers who are well-paid and can save part of their income,’ he told the Jakarta Post.

Employers would ‘face a financial crisis’ if forced to hand out high severance payments.

Last month, 13 trade unions sent letters to the government threatening to take action if the proposed regulations were implemented. But it is doubtful if they will be able to take on the government successfully.

The number of trade union members has plunged in recent years. From an estimated 8.3 million unionised workers in 2002, the country had little more than 2.2 million in 2005. One reason for the decline in membership among white-collar workers has been the closure or merger of banks in the wake of government efforts to strengthen the financial sector.

Meanwhile, unions representing low-skilled workers in the textile and garment sector have felt the impact of the trend towards subcontracting as private-sector labour agencies supply short-term workers to factory owners trying to avoid the onerous provisions of the labour law. A case in point is the Syarikat Perkerjaan Nasional, one of the largest unions in the garment and textile sector, which has lost 40 per cent of its membership over the past three years.

At the same time, squabbles within the labour movement have resulted in the number of unions rising from 45 to more than 100. So, while there are fewer members to mobilise, there are now more organisations to coordinate.

Admittedly, the unions do have important allies, particularly among political parties eyeing the impact of the government’s actions on the 2009 elections. Commission IX chairman Ribka Tjiptaning of the PDI-P has been particularly vocal in supporting trade union claims. But unlike last year, when Jakarta tried to change the law, President Yudhoyono now does not need the support of Parliament to introduce new regulations.

And despite the claims of white-collar unionists, blue-collar unions may not be willing to join the protests. Ms Rita Olivia, executive secretary of the Jakarta-based Trade Union Rights Centre, doubts the implementation of new regulations will trigger demonstrations as large as last year’s.

‘This is not an issue for all workers,’ she says. ‘It is only an issue for workers with higher salaries.’

bruceg@sph.com.sg