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.

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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.

Andi Gani, also chair of the steering committee of the People’s Deliberation (Musra) involving volunteer groups supporting Jokowi, understandably welcomed the new formula to decide next year’s minimum wage, saying that the formula was in line with Musra’s recommendations.

Other labor unions, nevertheless, argued that a 10 percent increase should be the minimum, not the maximum, as September’s fuel price hike had greatly impacted living costs in other sectors of the economy, such as food and rent costs.

What’s more

Permenaker 18/2021 reintroduces a calculation formula for the minimum wage that combines headline inflation and economic growth times a certain factor, called an Alfa factor. The Alfa factor is set at 0.1 to 0.3. The formula adopted by Permenaker 18/2021 will result in a higher increase of the minimum wage, compared with calculations based on PP 36/2021.

Jakarta, for example, has an annual inflation rate (from the fourth quarter of 2021 until the third quarter of 2022) of 4.61 percent and economic growth of 4.96 percent. Using the Alfa factor of 0.1, the minimum wage for Jakarta would be 5.1 percent – 4.61 + (4.96 x 0.1) = 5.1 percent. With the Alfa factor at 0.3, the minimum wage for Jakarta would be 6 percent – 4.61 + (4.96 x 0.3) = 6.01. Permenaker 18/2021, nevertheless, caps the increase at 10 percent.

Government Regulation (PP) No. 36/2021, nevertheless, uses a more complex calculation formula but results in a lower increase. The economic growth and inflation remained important parts of the calculation. Other lesser factors include consumer consumption, family-wide consumption, the purchasing power of laborers within families and the number of workers in families.

What we’ve heard

A businessman said that the 2023 minimum wage plan, which refers to the Manpower Ministry Regulation (Permenaker) 18/2022, had worsened the relationship between Apindo and Kadin. Apindo is not in favor of the regulation. It insists that the wage plan should still refer to Government Regulation 36/2021, which is a derivative rule of the Job Creation Law. Meanwhile, Kadin supports the Manpower Ministry regulation.

This source said that Kadin's alignment with the government's new formulation was related to Kadin chairman Arsjad Rasjid’s deference to the government. "He doesn't dare refuse anything President Jokowi asks," said this source.

Moreover, Arsjad's promotion to general chairman of Kadin was only possible due to support from the Palace. Thanks to the intervention of the Palace, Arsjad's rival at that time, Anindya Novyan Bakrie, was asked to retract his nomination by one of Jokowi's trusted ministers. A number of Anin's loyalists were even asked by people who claimed to be BIN members to shift their support to Arsjad. Whereas before the election, Anindya—the son of Aburizal Bakrie—was predicted to win 70 percent of the vote.

The source added that Arsjad could not refuse the plan that was proposed by the government regarding wages because it was reported that he would be included in the 2024 presidential election as a candidate for vice president.

"That's why Kadin is used as a 'tool' by the government to force through the new wage regulation and make it seem as though businessmen have already agreed to the 2023 minimum wage plan," said the source. It is natural that several labor organizations, such as the KSPI, support Kadin's move. Only recently has Kadin changed its mind and now it is planning to propose a judicial review of Permenaker 18/2022.

Disclaimer

This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access our latest edition to read the articles listed below:

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