Indonesia’s employers, workers still locked horns over 2023 minimum wage

Labor unions have called relentlessly for a minimum wage increase of around 13 per cent, as September’s fuel price hike had greatly impacted living costs.

Fadhil Haidar Sulaeman

Fadhil Haidar Sulaeman

The Jakarta Post


Protesters gather to show their displeasure at a gasoline price hike, outside of the House of Representatives building in Jakarta on Sept. 6. (AFP/Azwar Ipank)

November 11, 2022

JAKARTA – Nearing the end of the year, employers and workers have yet to reach an agreement on the 2023 minimum wage increase as both sides differ on the factors used to reach the final figure.

According to the Indonesian Chamber of Commerce and Industry (Kadin), next year’s wage increase demanded by labor unions was unrealistic as it was calculated using “their own assumptions”.

Labor unions have called relentlessly for a minimum wage increase of around 13 percent, as September’s fuel price hike had greatly impacted living costs in other sectors of the economy such as food and rent prices.

“[It] is very unlikely [the demand be met]. I don’t think the business world will be able to withstand it [if the unions’ proposed 13 percent minimum wage hike was implemented],” Kadin deputy chairperson for manpower Adi Mahfudz Wuhadji told reporters on Tuesday.

Also serving as National Wage Council (Depenas) deputy chairperson, Adi stated that despite not being the ultimate factors that determined the formulation of the minimum wage, annual GDP growth and headline inflation remained important parts of the calculation.

These two components are listed in Government Regulation No.36/2021 on remuneration, a byproduct of the Job Creation Law, and he asked the Manpower Ministry to follow this rule.

Other lesser factors, he continued, included consumer consumption, family-wide consumption, the purchasing power of laborers within families and the number of workers in families.

Data from Statistics Indonesia (BPS) show that the Indonesian economy has thus far increased by 5.4 percent year-on-year (yoy), while the consumer price index (CPI) rose by 5.71 percent yoy in October.

“We always look from a comprehensive perspective, we do not solely rely on the press release of headline inflation and national economic growth,” Adi continued.

Regarding mass layoffs, he stated that as long as the government mitigated the risk through “pumping economic growth” then the situation could be averted.

Meanwhile, Indonesia’s Employer Association (Apindo) advocacy head Darwoto said that a 3 to 4 percent minimum wage increase was preferred by businesses.

There would be no negotiations over the percentage of minimum wage growth with labor unions, he continued. “We already have the formula, so the numbers are just to be inserted. Just as it is,” Darwoto said.

Both domestic and foreign businesses are hoping that the central and regional governments are on the same page regarding next year’s minimum wage policy.

If there are conflicts of interest that mean regional governors acts on their own, he said, then it could create uncertainty for the private sector.

“[If governors are acting on their own], then why did we bother creating the Job Creation Law in the first place? Don’t you agree?” Darwoto said, adding, “We already have the regulation, it just needs compliance from all stakeholders. Come on, let us go [through this] together.”

Regarding another potential layoff wave in 2023, Darwoto forecasted that not all industries would suffer, as it would be confined mostly to the textile and electronics industries.

Stop fearmongering

On the other hand, Labor Party president Said Iqbal defended the position of labor unions by saying that they expected this year’s economy and headline inflation to grow by 4.9 and 6.5 percent yoy, respectively.

Adding these two factors with the “productivity value” of Indonesian human capital, he explained, a minimum wage rise of 13 percent, which was determined using the party’s own formula, was reasonable.

To that end, Said urged both the government and businessmen to stop fearmongering over the issue of a global recession and the pandemic, as he believed that it was just a ploy to justify a minimum wage rise of a meager 1 to 2 percent.

“The threat of recession has not yet reached Indonesia. The measurements are simple, our economy is massively in positive territory,” Said said on Wednesday.

Manpower Minister Ida Fauziah, meanwhile, assured that the 2023 minimum wage would be “relatively higher” than this year, in accordance with the data she had received from BPS.

After consulting with representatives for both employers and workers, she said the government had instructed governors to announce next year’s minimum wage according to the predetermined timeline, which this year falls on Nov. 21.

The minister underlined that fear of recession should not be a justification for employers to implement mass layoff policies, as these decisions should be data-driven.

“We have repeatedly said that layoffs are a last resort. There should be dialogue within the company between employers and workers as a first resort,” Ida said on Tuesday.

Center of Economic and Law Studies (CELIOS) director Bhima Yudhistira noted that the new regulations on remuneration were meant to benefit employers more than employees, as it assured that minimum wage growth would not be huge.

The old regulation, Government Regulation No.78/2015, stated that the minimum wage growth rate formula was based on headline inflation plus economic growth, which he stated was supposed to be 11.4 percent in 2023.

“It is predicted that the 2023 minimum wage will only increase slightly, and cannot contribute to maintaining the vulnerable middle class’ purchasing power,” Bhima told The Jakarta Post on Wednesday.

Using the economic theory of Nobel laureate David Card, Bhima believed that empirical facts would show that higher wages would lead to more consumer spending, which eventually increases the revenues of businesses.

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