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Jakarta Post

New minimum wage formula comes into effect

  • The Jakarta Post

    The Jakarta Post

Jakarta   /   Tue, October 27, 2015   /  06:15 pm
New minimum wage formula comes into effect

The government has enacted a new mechanism to determine minimum wages, which it hopes will provide greater certainty on the annual pay rise that employees are due and on the costs that businesses face in Southeast Asia'€™s largest economy.

President Joko '€œJokowi'€ Widodo on Friday signed Government Regulation (PP) No. 78/2015 concerning wages, which takes effect immediately, after being postponed for around 12 years. The regulation stipulates a measured annual wage increase that takes into account the current fiscal year'€™s inflation and gross domestic product (GDP) growth rates.

The PP explains that minimum wages that were multiplied by the inflation rate would ensure steady purchasing power, while multiplication with GDP rates would guarantee that increases in overall productivity were appreciated.

Manpower Minister Hanif Dhakiri called the regulation a breakthrough in the country'€™s employment rules. '€œGovernors must start using the formula in determining next year'€™s UMP [provincial minimum wage],'€ he was quoted as saying in a statement made available by the ministry on Monday. The PP rules that governors across Indonesia are to determine the following year'€™s UMP every Nov. 1 of the current year.

Previously, governors along with employers and labor unions determined the UMP every year in tripartite meetings. The process was criticized by many as being '€œpoliticized'€ by some parties, causing irrational and unpredictable increases in wages, according to the statement.

Hanif went on to say that the policy aimed to protect workers against low wages and unemployment so they could enter job markets with certainty and to help businesses expand and provide more employment.

Indonesian Employers Association (Apindo) head Hariyadi Sukamdani applauded the regulation, saying it could prevent governors from politicizing wages. Many have voiced concerns that local administration leaders used the wage issue to gain popularity while businesspeople suffered the costs of paying higher wages, he added.

'€œWe expect predictable and realistic wage increases, because we now have something to hold onto,'€ he told The Jakarta Post, expressing hope that industrial relations would be more relaxed without the annual tripartite negotiations to determine minimum wages.

The Indonesian Chamber of Commerce and Industry'€™s (Kadin) vice chairman for human resources relations, Benny Soetrisno, voiced a similar opinion. '€œThe regulation will encourage investors to invest and expand their businesses,'€ he said, adding that uncertainty in the wage system had halted some investments amid the slowing economy.

As Indonesia'€™s GDP growth slowed to a six-year low in the past few quarters, nearly 75,000 workers have been laid off this year in industries ranging from cigarettes, textiles, apparel, oil and gas, finance to manufacturing, according to various sources compiled by Bahana Securities.

Hariyadi added that wages weighed in at almost 50 percent of business costs in labor intensive sectors and around 30 percent in the hotel industry.

Meanwhile, Confederation of Indonesian Workers'€™ Union (KSPI) chairman Said Iqbal rejected the PP, saying that his organization was preparing a judicial review petition to be filed with the Supreme Court, as the policy focused only on business certainty rather than workers'€™ welfare.

'€œWe proposed a wage increase of 22 to 25 percent to offset the effect of employees'€™ purchasing power, which has dropped 30 percent since last November up until now,'€ he said over the phone, adding that the regulation had scrapped the right of labor unions to negotiate wages.

If the government wished to take immediate action to boost the country'€™s economy, Said said, then it should have issued a presidential instruction (Inpres) or another economic policy package. '€œIt'€™s unfair to apply a PP that takes effect for decades just to react to a temporary economic situation,'€ he added. (prm)

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