December 19, 2025
JAKARTA – Employers and labor unions have both voiced dissatisfaction with the government’s new formula for setting minimum wages in 2026, with businesses warning that the proposed increases are too high and could push up prices, while unions say they still fall short of meeting living standards.
President Prabowo Subianto on Tuesday signed a regulation setting a new formula, broadly in line with previous years, combining inflation and economic growth and adjusted by an “alpha” coefficient reflecting labor’s contribution within a specified range.
The coefficient for next year will range between 0.5 and 0.9, with provincial leaders having until Dec. 24 to determine the size of next year’s minimum wage increase using the new formula.
Under the formula, provincial minimum wages would rise by between 5.3 percent and 7.3 percent, an increase employers deem too steep and misaligned with fragile business conditions and productivity growth of only around 1.5 to 2 percent.
“This level of increase is too high relative to productivity levels and will weigh heavily on businesses,” Subchan Gatot, deputy head of labor affairs at the Indonesian Employers Association (Apindo), told The Jakarta Post on Thursday.
“Companies do not oppose wage increases,” he emphasized. “But when wages rise far above productivity, the difference will be absorbed in higher prices, which is counterproductive when purchasing power is already weak.”
Apindo chairwoman Shinta Kamdani said the government’s chosen range did not reflect the “uneven performance” across industries, with several sectors still growing below the national economic rate.
“These conditions leave little room for businesses to absorb additional costs,” she said on Thursday.
Industry data show that textiles and apparel grew just 0.93 percent year-on-year (yoy) in the third quarter of 2025, while footwear contracted 0.25 percent yoy, tobacco processing fell 0.93 percent yoy, furniture dropped 4.34 percent yoy and rubber and plastics declined 3.2 percent yoy. Meanwhile, the automotive sector contracted by about 10 percent yoy as of October.
Adhi Lukman, Apindo’s manufacturing head and chairman of the Indonesian Food and Beverage Producers Association (Gapmmi), said labor-intensive sectors had been under pressure from weak consumer demand, high costs and rising imports, leaving them “highly sensitive” to wage increases, especially as global trade uncertainty threatens exports and business continuity in 2026.
Read also: Govt, some unions want to narrow regional wage disparities
Labor unions, meanwhile, were divided over the use of the formula, saying it failed to adequately reflect rising living cost pressures.
The Confederation of Indonesian Trade Unions (KSPI) said it opposed the new government regulation on wages, while only accepting the top-end figure allowed under the formula.
“This is a strong warning to governors not to revise downward the minimum wage hike recommendations from mayors and regents,” KSPI president and Labor Party chairman Said Iqbal said on Wednesday, urging regional leaders to adopt only the upper limit.
“Below that level, workers’ wages will not be able to keep up with rising living costs.”
Citing information he had received, Said pointed out that West Java plans to set the coefficient at the lowest level, while Jakarta is expected to choose a mid-range figure.
KSPI further questioned the government’s methodology, saying the new rule risks weakening wage protection by redefining the benchmark for a decent living standard.
“The government appears to be unilaterally creating a new version. That is dangerous, because the benchmark is the foundation of wage policy,” Said noted.
Mirah Sumirat, president of the Indonesian Workers Union Association (Aspirasi), said the new formula did not reflect or guarantee workers’ basic living needs.
“We are disappointed that the formula neither reflects nor ensures decent living needs for workers and their families,” she said in a statement on Wednesday.
Ristadi, president of the National Federation of Trade Unions (KSPN), said on Wednesday that the new regulation “offers no clear assurance” that regions with lower minimum wages would receive larger increases than wealthier areas, raising the risk of widening wage disparities.
“We are even concerned the opposite could happen,” he told the Post.
To ensure fairer distribution, he called for coefficients to be set based on provincial wage levels, with the highest coefficients applied to regions with the lowest minimum wages to prevent further inequality.
Read also: Govt rolls out minimum wage rule late, drawing union ire
Tadjudin Nur Effendi, a labor expert at Gadjah Mada University (UGM), said the new regulation was “vague” and would confuse regional governments, as it provides “no clear criteria” for choosing the appropriate coefficient, leaving decisions subjective and potentially contentious.
“The index is extremely vague. I looked for the criteria for regions to choose from. There are none,” Tadjudin told the Post on Thursday.
“The central government seems to be offloading [wage] issues onto governors, where local pressures vary widely. It’s the same old problem, yet workers’ conditions don’t improve,” he said.
Manpower Minister Yassierli defended the regulation, emphasizing that the drafting process had taken into account input from both workers and employers equally.
The government sought to lock in annual wage increases through the 2023 Job Creation Law, but the effort was thrown into uncertainty after the Constitutional Court struck down 21 of its articles in November 2024 and ordered lawmakers to draft a new manpower law within two years.
While both the government and the House of Representatives have pledged to comply with the ruling, a replacement Manpower Law has yet to materialize.