The system of industrial relations in Indonesia is undergoing a transition from a heavily centralized and government-controlled system, to a more decentralized system where employers and employees negotiate the terms and conditions of employment at the enterprise level. However, many components are still influenced by the paternalistic central government practices of the past. This transition is in line with the changes in the broader social and political context, where Indonesian society has recently transformed itself from a society under the control of an authoritarian regime to one which is more democratic.

Outside of issues concerning wages under the industrial relations policy, the SMERU research team’s findings indicate that other aspects of industrial relations at the enterprise level are generally functioning properly. Most employers stated that despite the burden, they had complied with the new regulations because they were formulated through a tri-partite negotiation. In addition, the enterprises did not want to initiate disputes with their employees.

Most disputes can be resolved through bipartite dialogue. Both employees (or enterprise unions) and employers argue that there are few serious indications of tension in employee-employer relations. Both parties are still undergoing a learning process: employees are learning to exercise the freedom to organize, articulate their demands, and find better methods of negotiation, whereas employers are learning to regard employees as work partners.

The government’s contribution to facilitating the smooth running of the new system has been considered inadequate and has often undermined the creation of a more productive industrial relations system. In Indonesia, a stronger union movement means that the government no longer needs to play a major role in industrial relations disputes, but rather should act as impartial facilitator and regulator. However, this may result in less influence and rewards for government officials.