Outsourcing and the Constitutional Court Decision Issues in Indonesia and Abroad, and Possible Solutions

This phenomenon is attributed to the dominant role of services in job creation and global production networks, particularly in East Asia. The communications revolution has also led to an increased need for labor market flexibility, which has become essential for business survival. In Indonesia, the growth of services employment has outpaced that of manufacturing, with services accounting for about two-thirds of new jobs generated in the 2000s. However, the poor performance in manufacturing employment can be attributed to a marked deceleration in labor-intensive exports and few new jobs in faster-growing, heavy industry. The expansion of new service activities has involved jobs for many more educated females, which is probably one reason for the sharp decline in female unemployment from 2005. Casualization has become a significant issue in Indonesia, with most new jobs being casual. Casual workers earn less and are less educated than employees in regular jobs. The number of regular wage jobs had not recovered in 2009, compared with the start of the decade, and casualization stood out in manufacturing and construction. The Constitutional Court (MK) decision of January 17, 2012, has brought some awkward questions to the surface for Indonesian policymakers. The MK identified an important problem that has contributed to labor tensions in Indonesia: employers' use of outsourcing and short-term contracts to avoid fixed labor costs that are normally paid to regular workers. However, the MK ruling that PKWT (associated with outsourcing) can only be justified for activities that are irregular or seasonal, and not for regular activities, goes against international practice, particularly in services, and its enforcement severely damages employment prospects. The MK decision has both positive and negative aspects in relation to casual, contract, and outsourced work. On the positive side, it identified an important problem that has contributed to labor tensions in Indonesia. On the negative side, it ruled that PKWT can only be justified for irregular or seasonal activities, which severely damages employment prospects. The MK is right to seek to eliminate discrimination between regular workers and OS workers and PKWT workers in levels of pay and non-wage emoluments. However, stricter implementation of minimum wages and other basic standards, and improved rights of casual workers, means it is essential to counter discrimination. A long-term strategy would be to revise Law 13 to encourage more employment of regular workers. In addition, a more professional approach is required in negotiations with unions to cover such revisions. It would be useful to start deliberations on how the new SJSN can be integrated with the introduction of the SJSN to address the issues of casualization and outsourcing. This would involve continuing to work toward a long-term strategy for reform of UU13 integrated with the introduction of the SJSN. The spread of outsourcing and short-term