Reinforcing the State: Transnational and State Labor Regulation in Indonesia

Key Insights for Managers

How well has Better Work Indonesia, a partnership between the UN’s International Labour Organization (ILO) and the International Finance Corporation (IFC), helped their suppliers’ working conditions? Authors Matthew Amengual and Laura Chirot analyzed two case studies and concluded that this transnational initiative helps factories comply with local labor laws when government regulators clearly interpreted new labor standard laws by describing how they should be implemented by factories, but only in regions where labor unions had a strong political presence. For example, following a new minimum wage regulation, the Better Work Indonesia program successfully encouraged factories to raise wages because local regulators clearly defined how factories should interpret and implement the new regulation, but was able to do so only in geographic areas of Indonesia where labor unions were particularly strong, namely Bogor, Jakarta, and Tangeran. Buyer managers should expect better working conditions in the presence of these two factors, and more intensively scrutinize compliance and consider capacity development for Indonesian suppliers that have not joined Better Work Indonesia and/or are located in regions with weaker unions.