Fewer workers employed to avoid rows, reduce risks

The Jakarta Post, Jakarta

The labor-intensive manufacturing sector is introducing major changes to the way it operates to avoid potential labor disputes as a result of what the sector sees as unfavorable regulations.

Many large manufacturers with over 1,000 workers are downsizing and reducing employee numbers, or subcontracting orders to smaller companies, to reduce labor costs and avoid production disruptions caused by labor disputes.

Many textile and garment manufacturers in West Java are transforming themselves into traders because their products are no longer competitive in overseas markets due to illegal fees and operational disruptions by workers.

"After 10 years of operation, I had to close down my textile firm last year due to problems with workers, who frequently went on strike while the company was dealing with financial problems," said businessman Lili Asjudiredja on Tuesday.

His company, which had 1,200 workers, found itself in financial difficulty because of illegal fees and the inflow of cheap smuggled textiles from China.

"If only the workers understood the company's situation and were not provoked by other parties, my company could still be operational," said Lili, who is chairman of the West Java Textile Association and a member of the House of Representatives.

After paying some Rp 30 billion (US$3.18 million) in compensation to the dismissed workers, Lili opened a textile spinning firm with several colleagues. The firm employs 400 workers on annual contracts.

Many businesspeople said their reluctance to employ huge numbers of workers was partly due to Law No. 13/2003 on labor, which stipulates that companies must provide numerous allowances and a hefty severance pay for fired employees.

For example, if a company was forced to lay off workers who had been with the company for nine years, it would have to give them severance pay of up to nine times the workers' monthly salary.

This excludes the "working-award allowance", which can reach more than nine times the monthly salary for workers who have been with a company for at least 24 years.

Businesspeople say it is difficult to dismiss unproductive workers because of the number of allowances they must provide fired employees, with each allowance able to amount to more than one-month's salary.

Due to these problems, Lili said, some of the giant textile manufacturers in West Java were choosing to reduce the number of their workers and subcontract overseas orders to nearby home industries that have lower production costs.

These small firms can produce textiles and garments at a lower cost because they are not registered with any government agency, so they do not have to comply with labor regulations.

Workers in such companies are paid less than minimum regional wages and receive no allowances or insurance. The workers are do not sign contracts, meaning they can be fired at any time.

The chairwoman of the National Front for the Struggle of Indonesian Workers, Dita Indah Sari, confirmed that employees at these small unregistered firms received few if any rights.

Some companies, she said, preferred to tie up their workers under renewable annual contracts so they could more easily dismiss the employees without having to pay much money.

"Our concern is that workers are not that demanding because their bargaining position is becoming weaker. If they are fired they will have trouble getting a new job because a lot of manufacturing firms are shutting down," said Dita.

According to Dita, some 175 manufacturing firms were closed in West Java alone over the past two years, putting some 750,000 people out of work.