With the process of democratization, industrial relations in Indonesia today have a new image that has continuously been seeking its form since the downfall of Soeharto on 21 May 1998. The toppling of the symbol, and primary player of Indonesia's authoritarian New Order government, brought forth a new era towards a democratic society. The democratization process became the context for industrial relations dynamics in Indonesia, with the opening up of opportunities for freedom of association, stoking hopes of bringing the position of trade unions on a par with employers and the government. In brief, with the new system of industrial relations in place, the role of trade unions has been enhanced and increasingly taken into account by the other two players (the government and employers). The enhanced role is, among other signs, indicated by the participation of trade unions in the formation of labour laws, their active role in wage councils to determine minimum wages, the labour masses’ show of force every first of May, and their success in rejecting the revision of the ministerial regulation on wages, as well as the revision of Law 13/2003. The revision of the Law 13/2003 would have paved the way for more flexibility in the labour market. Enhancing the role of trade unions is assumed to bring improvement in working conditions and employees’ welfare as the bargaining position of the trade unions will be much greater.

In-depth observations suggest that equality in the positions of the three players (trade unions, the government, and employers) in industrial relations must be understood far more carefully, as there are three situations (decentralized government, freedom of association, and labour market flexibility) that frame the characteristics of industrial relations in Indonesia within this Reformasi era. These three situations evolve and develop together to create a condition that quite objectively makes it difficult to create equal relations among the three players. The three situations also point to the fact that ideologically, industrial relations in the post-New Order era of Indonesia have featured neo-liberalism through the means of democracy.

This chapter shows how the characteristics and dynamics of industrial relations in the Reformasi era occur in the framework of the three situations, implying the existence of a push-and-pull of power and interests among the involved parties, and their implications on investment practices and employees’ welfare in Indonesia.