Local governments in Indonesia have been announcing their new minimum wages in recent weeks. According to national law, municipal minimum wages have to be announced before 21 November 2017 (and will come into effect on 1 January 2018). Overall, the Indonesian government set a 8.71 percent increase in minimum wages for 2018. This way it allows the Indonesian workers to adjust to continuously rising living costs.
In an economic policy package that was implemented in 2015 the Indonesian government introduced a formula to ensure gradual and predictable minimum wage increases across Indonesia as this would make the investment and business climate much more attractive. Problematically, in the 2013-2014 period minimum wages – for example in Jakarta – had suddenly surged drastically, and this seriously burdened companies (hence resulting in layoffs or sometimes even the relocation of factories to other parts of Indonesia or abroad, such as Vietnam).
This new minimum wage growth formula is based on the sum of Indonesia’s inflation and GDP growth over the past 12 months. According to data from Statistics Indonesia (BPS), Indonesia’s inflation reached 3.72 percent (y/y) in September 2017, while economic growth was recorded at 4.99 percent (y/y) over the same period (September 2016 – September 2017).
Indonesia’s capital city Jakarta, for example, decided to set the new provincial minimum wage at IDR 3.65 million (approx. USD $270) for 2018, although local labor unions previously demanded a minimum wage of IDR 3.9 million based on calculations that included the basic cost of living.
Overall, Indonesia’s minimum wages are still attractive. However, a key problem in Indonesia is that workers’ productivity is generally low.
Indonesia’s Minimum Wages per Province in 2018:
|Nusa Tenggara B.||1,825,000|
|Nusa Tenggara T.||1,660,000|
|North Moluccas||not determined yet|
Minimum Wages in Indonesia’s Key Business Centers: