This paper approaches the subject of labour standards from the standpoint of domestic labour market circumstances rather than international norms. The paper assesses government approaches to improving standards in the context of Indonesia’s daunting ‘employment challenge’, and the capacity of institutions to implement reform since the fall of Soeharto. The discussion of recent reforms is divided into two parts: the affirmation of basic rights and freedoms, and legislation for the protection ‘Survival’ and ‘Security’ Rights. We find that while the protection of labour freedoms is long overdue, there is mounting evidence that regulation of setting labour standards in the modern sector benefits the few with ‘better’ jobs. It penalises many less fortunate Indonesians in the informal sector and agriculture, and also younger, new job seekers. Owing to a significant improvement in Basic and Civil Rights, the compliance regime in relation to labour standards has altered dramatically in recent years. This has closed the gap between rhetoric and reality: between formal ratification and the actual impact of labour regulations on labour costs, while giving no obvious boost to productivity. It is of concern especially in those internationally labour-intensive industries such as textiles footwear and clothing TCF, where Indonesia has had a comparative advantage in the past.