Posted by: nsrupidara | February 3, 2010

Actors, institutional change and stability in the Indonesian Industrial Relations System

Neil Semuel Rupidara and Peter McGraw, Macquarie University

Contact address:
Dept. of Business
Division of Economics and Financial Studies
Macquarie University
Sydney NSW 2109

Track 4: Institutions, Processes and Outcomes

This paper presents an overview of significant recent developments in the Indonesian industrial relations system within a conceptual framework that draws on institutional theory. The roles of key actors in the system are described and analysed as the system has evolved from one characterised by tight state control to one which allows more independence for employers and unions. In addition to macro level change, the paper also discusses various micro level institutional influences and their impact on employee relations in different economic sectors. We argue that the new developments provide a change to the institutional setting of Indonesian industrial relations which have the scope to lead to a less uniform system and subsequent outcomes. For this reason we suggest that the paper is most aligned to the track.4.

Indonesian labour relations have changed a great deal since 1998. The fall of the Soeharto government was an open door for labour reform and has provided new opportunities for actors in the system to shape the institutional framework. Moving from a state-controlled system, Indonesian labour relations can now be said to have entered a more democratic phase. The reform era began with the ratification, by the Habibie government, of ILO Convention 87 which guaranteed trade union freedom and the right to organize (Caraway 2004). The reform process has continued with subsequent Indonesian governments passing a range of laws, rules, and derivative regulations to strengthen the democratic system of industrial relations. Evidence of this change can be seen with the recent emergence of a genuine bipartite system whereby unions and employers can bargain outside the long running tripartite system which still operates to set minimum wages. On February 25, 2008 the National Bipartite Forum issued a joint declaration outlining agreed guiding principles for collective bargaining and dispute resolution outside of the old system ( On this basis, we suggest that further important changes in labour context will be taking place in the near future.

Changes at the macro level will undoubtedly provide impetus to further IR reform at the micro-level of firms’ operation. The macro level changes will establish new institutional settings for firms to operate under. We argue that institutional actors such as employers association, labour unions and government agencies will have more opportunity to contest and shape the system in order to maximise their sectional interests.

In spite of changes noted above, the Indonesian labour framework from the Soeharto Era, had become deeply entrenched and provides a strong institutional restraining force against change. Both public and private sector organisations have become accustomed to policies and regulations that favoured industrial stability and included for example protection from ‘illegal’ strikes for employers. Reluctance on behalf of some employers who have benefited under the old system may be a hurdle for new policies that threaten not only their interests but also their familiarity with the process. The social/cultural milieux of the nation may also be a source of institutional persistence and will form part of the analysis in this paper.

Based on the above, the study aims to achieve at least two things. First we will provide a rich discussion of the forces for both change and stability in the Indonesian labour context. This paper will discuss both the ‘Old’ and ‘New’ Orders but will focus particularly on changes since 1998 and current developments. Second, we will discuss the roles of various actors in the system including foreign institutions, such as international agencies, multinational companies, as well as the influence of modern ideas, especially those around the issue of globalisation.

The paper will be theoretically based on the work of Campbell (2004) on institutional change. Further, we would also base our analysis on the ideas that bring together Old and New institutionalism (e.g. DiMaggio and Powell 1991) Old institutionalism for instance has been argued to focus its analysis around classic IR issues such as norms and vested interests of actors which then provide a foundation toward coalition and competition toward institutional change and stability. New institutionalism, on the other hand, provides an institutional template to explain conformity and gives insights into institutional persistence.

Along with the mainstream institutional theory, the paper will also incorporate theoretical insights from actor networks (Czarniawska and Hernes 2005) and micro-politics (Edwards et al 2007), to offer insight into the role that actors play within the institutional framework. Based on these perspectives, the main research question is focused around the extent of to which actors and institutions assist and impede institutional change.

In the review section, the paper will draw together diverse sources of literature and documents on Indonesian labour issues. Primary data will be collected from in-depth interviews with relevant actors. In addition the research will include participant observation in HR mailing lists to capture the ideas diffused and discussed by key actors. News media will also used to identify issues and detail cases.

We expect the results to elaborate and highlight the main themes in the debate of institutional change and stability. The Indonesian labour context will provide a case that shows actors playing different roles and in varying degree across-time. The interplay of actors and institutionalised environment will contribute theoretically to the non-dichotomous perspective in institutional analysis.

Campbell, J. L. (2004), Institutional change and globalization. Princeton: Princeton University Press.
Caraway, T. L. (2004), Protective repression, international pressure, and institutional design: Explaining labor reform in Indonesia. Studies in Comparative International Development, 39(3), 28-49.
Czarniawska, B., T. Hernes, (2005), Actor-network theory and organizing, Copenhagen: Copenhagen Business School Press.
DiMaggio, P. J., Powell, W.W. (1991) (Ed.), The new institutionalism in organizational analysis, Chicago: University of Chicago Press.
Edwards, T., Colling, T., & Ferner, A. (2007), Conceptual approaches to the transfer of employment practices in multinational companies: an integrated approach, Human Resource Management Journal, 17(3), 201-217.

Note: This abstract was submitted to the 15th World Congress of the International Industrial Relations Association, held in Sydney, 24 – 27 August 2009, by Industrial Relations Society of Australia (Russel Lansburry, University of Sydney, President). The full paper was presented by Neil on 26 August in Sydney Convention Centre. Please visit:


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