"Indonesia works through employment protection", 22 October 2022

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To revive domestic competitiveness and create more jobs, the Omnibus Law reformed Indonesia’s labour-related regulations. But while the relaxation of labour laws can induce higher private investment, it can also harm workers.

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While FDI creates jobs and improves productivity in developing countries, competition to attract FDI can lower labour standards. The key to avoiding this trap for Indonesia is to transform its economy from one reliant on low-skilled labour to one that is knowledge-based. In the medium term, unemployment protections through vocational training and job-search matching in the Omnibus Law could boost workers’ employability if they help meet the labour demands of the private sector.

The next step is to improve business regulations in Indonesia. That requires significant bureaucratic reform at the national and subnational levels without further lowering labour standards.