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Analysis: Govt changes minimum wage calculation formula to please unions
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Politician of the National Awakening Party Ida Fauziah visited the Presidential Palace, Jakarta, Tuesday, October 22, 2019. (JP/Donny Fernando)
T
he government has changed the formula to calculate the minimum wage for 2023 to please labor unions supporting the government but disappoint businesspeople. The new formula will result in a higher increase of the minimum wage than the existing formula, but the government caps the increase at 10 percent maximum.
The government issued Manpower Minister Regulation (Permenaker) No. 18/2022 on the new minimum wage for 2023 that reintroduces the inclusion of inflation and economic growth in the calculation of the minimum wage and would give a relatively higher increase of minimum wage, compared with the existing formula in Government Regulation (PP) No. 36/2021, a by-product of the 2020 Job Creation Law.
Manpower Minister Ida Fauziah explained that her ministry decided not to use the formula in PP 36/2021 and introduce the Permenaker because the government wanted to give more purchasing power to laborers and therefore, boost economic growth for next year. Ida, however, warned that Permenaker 18/2022 would be used in the calculation of the minimum wage for 2023 only, not 2024. For 2024, the government will return to the PP 36/2021 formula that will result in a much lower increase.
Based on Permenaker 18/2022, governors are required to announce the provincial minimum wage for 2023 by Nov. 28, 2022, while regents and mayors are required to announce the 2023 regency/mayoralty minimum wage by Dec. 7, 2022. At least two provinces, Riau and West Papua, have announced their 2023 minimum wage based on the PP 36/2021 formula.
Businesspeople grouped in the Indonesian Employers Association (Appindo) immediately lambasted the government’s decision on the minimum wage that they claimed would penalize businesses even more as many businesses in certain sectors, such as textile and footwear, were already facing hardship and eventually laying off many of their workers. They warned that the relatively higher increase of the minimum wage for next year would result in more layoffs.
They also complained about the government’s inconsistency in policy making, saying that it adopted Permenaker 18/2022 without consulting them. The Permenaker was never discussed in the tri party forum, the National Wage Council, which gathers representatives of labor unions, businesspeople and the government.
Sources said that President Joko “Jokowi” Widodo himself wanted a higher minimum wage for next year to please a number of labor unions that support him, especially the Confederation of Indonesian Labor Unions under the leadership of Andi Gani Nena Wea and the Confederation of Indonesian Trade Unions (KSPI) under Said Iqbal. Jokowi is said to use the labor unions to give pressure to the Indonesian Democratic Party of Struggle to choose central Java Governor Ganjar Pranowo as its presidential candidate.
