Polemics of Minimum Wage Increase in Indonesia

December 1, 20211:04 pm1015 views
Polemics of Minimum Wage Increase in Indonesia
image source: RRI

Indonesia’s Manpower Minister Ida Fauziyah recently announced a 1.09% increase in the monthly minimum wage for 22 provinces in 2022. The country’s capital, Jakarta hiked its minimum wage by 0.85% to Rp 4.45 million (US$313.26), the highest among others, and Central Java increased it by 0.78% to Rp 1.81 million, making it the lowest nationally. While the figure has been finalized, the regulation evokes some polemics, with workers being the least benefitted.

What the Govt Said

The government calculated the wage increase based on Government Regulation (PP) No. 36 of 2021, which is a derivative regulation of Law (UU) No. 11 of 2020 on Job Creation. Indah Anggoro Putri, Director-General for Industrial Relations and Manpower Social Security at the Manpower Ministry, stated that this is not the provincial minimum wage, but rather the average minimum adjustment on earnings for next year. Putri added that the minimum wage was established to encourage regional growth, with a salary range below the average value of consumption needs. In line with Putri’s comments, expert member of the National Wage Board, Jojo Santosa, stated that the rule sought to achieve regional justice in Indonesia. 

The new regulation will only cover the province and district or local minimum wage, as well as the minimum wage exemption for micro, small, and medium – sized enterprises. This also includes two formulas for calculating the minimum wage, namely the region’s minimum wage adjustment and the setting formula. According to the new regulation, the minimum wage is determined based on labor and economic conditions, with the criteria including purchasing power parity and workforce absorption rate.

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Last year, the government did not raise the minimum wage in order to help businesses cut costs during the pandemic-induced economic recession. According to BPS statistics, this came at a time when Indonesia’s unemployment rate fell by 0.58 percentage point to 6.49% in August from the previous year. This equates to almost 670,000 new employment. Despite an increased employment rate, Indonesia’s average actual wage fell 0.72% year on year (yoy) to Rp 2.72 million in August, according to BPS statistics. Bangka Belitung Islands had the highest annual growth rate of 8.5%, while Jakarta had the lowest annual growth rate of 4.6%.

Workers Refuted

Labor unions plan to flood the streets before the end of the year to protest the monthly minimum wage increase for 2022, which is lower than expected. Unions had recommended salary increases ranging from 5 to 20%, but were disappointed by the Manpower Ministry’s recent statement that salaries will be increased by an average of only 1.09% nationwide. The chairperson of the Congress Alliance of Indonesian Labor Unions (KASBI) announced that a protest would be held this month. Similarly, the Indonesian Workers Union Confederation (KSPI), the Indonesia Welfare Labor Confederation (KSBSI), and the Indonesian Workers Union Association (Aspek) have all expressed their objection to the recent minimum wage increase.

According to Mohammad Faisal, executive director of the Center for Reform on Economics (CORE) Indonesia, a slight increase in the minimum wage may allow businesses to recruit additional workers in response to the rising demand. However, workers’ buying power would decline since salary increases were smaller than inflation, added Faisal, implying that the minimum wage really decreased in real terms. They will be able to buy fewer goods and services. As a result, the impact is on buying power. When buying power diminishes, the pace of economic recovery slows.

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