Emergency regulation replaces job creation law in Indonesia

The law is amended to include a component for the formula used to determine minimum wages that take purchasing power into consideration.
By: | January 3, 2023

A controversial job creation law that the Constitutional Court of Indonesia had ruled to be unconstitutional has been replaced with an emergency regulation signed by Indonesian President Joko Widodo, Indonesia’s Chief Economics Minister Airlangga Hartarto has announced.

Despite global geopolitical uncertainty, Airlangga explained that the regulation aims to ensure legal certainty and enable the government to achieve its investment target.

The omnibus law passed in 2020 updated more than 70 other laws, and its passage was hailed by foreign investors as a major step towards simplifying business rules in South-East Asia’s largest economy, which had a long history of bureaucracy. The law, however, sparked nationwide protests from workers, students, and environmental groups, who argued that it undermined labour and environmental protections.

Among the biggest controversies in the job creation law were relaxed rules on severance pay, changes to the minimum wage formula, contract labour and outsourcing, and a stipulation that environmental studies be only required for high-risk investments, reported Straits Times.

The emergency regulation introduces some changes to that law to reflect trade union’s demand, Airlangga added, including limiting outsourcing to certain sectors and adding a component for the formula used to set the minimum wage so that it would consider purchasing power.

READ: Indonesia’s salary hike in 2023 expected to exceed APAC average

Mahfud MD, Indonesia’s Chief Security Minister, said the government opted for an emergency regulation because the routine procedure to comply with the ruling would take too long. He added that the government needed to decide “strategic measures” in anticipation of the impact of a global economic downturn and potential food crisis this year.