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Severance pay compliance in Indonesia

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  • Brusentsev, Vera
  • Newhouse, David
  • Vroman, Wayne

Abstract

This paper contributes new evidence from two large household surveys on the compliance of firms with severance pay regulations in Indonesia, and the extent to which changes in severance pay regulations could affect employment rigidity. Compliance appears to be low, as only one-third of workers entitled to severance pay report receiving it, and on average workers only collect 40 percent of the payment due to them. Eligible female and low-wage workers are least likely to report receiving payments. Widespread non-compliance is consistent with trends in employment rigidity, which remained essentially unchanged following the large increases in severance mandated by the 2003 law. These results suggest that workers may benefit from a compromise that relaxes severance pay regulations while improving enforcement of severance pay statutes, and possibly establishing a system of unemployment benefits.

Suggested Citation

  • Brusentsev, Vera & Newhouse, David & Vroman, Wayne, 2012. "Severance pay compliance in Indonesia," Policy Research Working Paper Series 5933, The World Bank.
    • Handle: RePEc:wbk:wbrwps:5933
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    References listed on IDEAS

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    4. MacIsaac, Donna & Rama, Martin, 2001. "Mandatory severance pay : its coverage and effects in Peru," Policy Research Working Paper Series 2626, The World Bank.
    5. Gindling, T.H. & Terrell, Katherine, 2007. "The effects of multiple minimum wages throughout the labor market: The case of Costa Rica," Labour Economics, Elsevier, vol. 14(3), pages 485-511, June.
    6. Chris Manning & Kurnya Roesad, 2007. "The Manpower Law of 2003 and its implementing regulations: Genesis, key articles and potential impact," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 43(1), pages 59-86.
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    Cited by:

    1. Mariya Aleksynska & Friederike Eberlein, 2016. "Coverage of employment protection legislation," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-20, December.
    2. Landau, Ingrid & Mahy, Petra. & Mitchell, Richard., 2015. "The regulation of non-standard forms of employment in India, Indonesia and Viet Nam," ILO Working Papers 994888153402676, International Labour Organization.

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    Keywords

    Labor Markets; Wages; Compensation&Benefits; Social Protections&Assistance; Labor Policies; Labor Management and Relations;
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