A New Era of Labour Market Regulation in Developing East Asia? The Case of Indonesia

Abstract

The efficiency of labour markets has been identified as one element in the East Asian “miracle” economic performance, in the context of effective management of markets generally (World Bank, 1993, pp. 258–273). With the exception of Singapore, the absence of direct government intervention in determining the price of labour has been one factor which distinguishes the NICs and the ASEAN4 countries from many Latin American and African economies. Flexible labour market adjustment, high levels of labour mobility and response to wage incentives have been critical to facilitating rapid transfer of labour from low productivity into rapidly growing sectors. The second half of the 1980s marked a watershed in labour market policies in several countries in the region, most notably South Korea and Taiwan. Several factors combined to herald an era of increasing labour demands and government concern with labour protection. These included strains imposed by a decade or more of tightening labour markets and domestic pressures for liberalization of union controls (in Korea in particular). In Korea and Taiwan, domestic political action supported the move towards reducing control of labour and increasing government intervention in labour market outcomes. Excess demand for unskilled labour placed unions in a much better position to demand greater regulation of wages and working conditions.