2018 Minimum Wage Forecast

The Minister of Manpower just issued a notice to all Governors in Indonesia on 13 October 2017 regarding the 2018 minimum wage fixing. The letter contains a reminder to set the minimum wage in accordance with Government Regulation No. 78 of 2015 which includes:

1. Simultaneously announce the provincial minimum wage on 1 November 2017
2. Set and announce the minimum wage of the city/regency no later than 21 November 2017
3. Set the minimum wage according to the formula stipulates by the Government Regulation in question, which is to base it on the yearly inflation rate and gross domestic product (GDP) growth factors.

The letter also include the percentage of the yearly inflation rate and GDP growth that the Governors should refer: 3.72% inflation rate and 4.99% of GDP growth.

The letter indicates that minimum wage increase on 2018 will be within the range of 8-10%. Industries located in the provinces where the regional government always strictly follow the central government recommendation could expect minimum wage increase of 8.71%.

This increment rate would not directly affect the sector-based minimum wage, although the provincial or municipal minimum wage is the base value used by employer association and trade union when negotiating sector-based minimum wage.

Menteri Ketenagakerjaan baru saja mengeluarkan pemberitahuan ke semua gubernur di Indonesia pada tanggal 13 Oktober 2017 mengenai penetapan upah minimum 2018. Surat tersebut berisi pengingat untuk menetapkan upah minimum sesuai dengan Peraturan Pemerintah No. 78 tahun 2015 yang meliputi:

1. Secara bersamaan mengumumkan upah minimum provinsi pada tanggal 1 November 2017
2. Menetapkan dan umumkan upah minimum kota / kabupaten selambat-lambatnya tanggal 21 November 2017
3. Menetapkan upah minimum sesuai dengan rumusan yang diatur dalam Peraturan Pemerintah yang bersangkutan, yang mendasarkan pada tingkat inflasi tahunan dan faktor pertumbuhan produk domestik bruto (PDB).

Surat tersebut juga mencakup persentase tingkat inflasi tahunan dan pertumbuhan PDB yang harus diacu oleh Gubernur: tingkat inflasi 3,72% dan 4,99% dari pertumbuhan PDB.

Surat tersebut mengindikasikan bahwa kenaikan upah minimum pada 2018 akan berada dalam kisaran 8-10%. Industri yang berada di provinsi dimana pemerintah daerah selalu mengikuti rekomendasi pemerintah pusat dapat mengharapkan kenaikan upah minimum sebesar 8,71%.

Tingkat kenaikan ini tidak secara langsung akan mempengaruhi kenaikan upah minimum sektoral, walaupun upah minimum provinsi atau kota adalah nilai dasar dalam negosiasi upah minimum sektoral antara asosiasi pengusaha dan serikat pekerja/buruh.

Indonesian Labour Regulations Profile: Child Labour (Prototype)

We are building a complete Indonesian Labour Regulations Profile (ILRP) that could be used by compliance auditor/assessor, corporate responsibility, sustainability and compliance professional, human resources specialist, academics and general public. This document consists of main topic, the concerned law or regulations and the statutory conditions.

We are trying out the profile by posting the first two pages of the document with the topic of Child Labour.

The document could be downloaded from below link.

ILRP Child Labour WM




Reframing the Underlying Issues of Child Labor in Indonesia

Child labour refers to the employment of children that socially, mentally and physically harms them, deprives children of their childhood or keeps them away from attending school. In the extreme, child labour includes children that being enslaved, exploited and exposed to serious hazards and illnesses.[1] According to the International Labour Organization (ILO), not all work done by children constitutes child labour. Work that does not affect children’s health and personal development or interfere with their schooling is generally viewed as positive.[2] Activities such as helping their parents around the home, assisting in a family business or earning pocket money outside school hours and during school holidays considered as activities that not only contribute to their family welfare but also to children’s development.[3] They provide children with experience and skills that could help to prepare them to be productive members of society. [4]

The ILO recently released a report that estimates about 152 million of children between 5 to 17 years were subject to child labour.[5] Child labour remains concentrated primarily in agriculture (70.9 per cent), 17.1 per cent work in the services sector and 11.9 per cent of child labourers work in the industry.[6] In Indonesia, the 2016 statistic shows that at least 2 million children between 15 to 17 years are engaged in employment.[7] In addition, the ILO estimated that there are 3.2 million children between the ages of 10 – 17 years old in Indonesia engaged in employment with some involved in the worst forms of child labour.[8] What is more, over the last decade the number of reported working children in Indonesia hovers between 1 to 3 million. This number could be greater if it includes children who work as domestic workers, involves in the informal sector or working on the street. Looking at the statistic, it is safe to say that child labour is a persistent issue.

Child labour issues persistenly occur even when national laws and international standards are already in place. It is likely that the current regulatory and standards approach could not effectively address the underlying issues of child labour. The cause of child labour, though it seems clear to regulators, are lingering in the discourse of poverty. Nearly half of the global population lives on less than US$ 2.50 per day.[9] About 400 million children in the world live in extreme poverty[10]. Although, laws and regulations regime rigidly limit the employment of people below the age of 18, without addressing poverty the policy would not be effective to eradicate the issue of child labour.

Another underlying issue is employment rate. When unemployment rate is relatively high – economy in poor shape and jobs are scarce, families could not make ends meet. It is not surprising that in this condition, children would be the first that negatively affected. They do not only have to drop out from school but also often must lend a hand so that their family could attain basic necessities by engaging in the employment of some sort. On the extreme, children often forced to work and exploited to pay their family’s debt which was used to attain those basic necessities.

Access to education or lack thereof is one of the influencing factors as well. Education could help children and subsequently communities’ future opportunities. Some argue that public policy of compulsory education is sufficient to tackle the issue. However, it could be argued that compulsory education program is not enough to answer the issue of children education because it still bears a significant cost to poor working families. In Indonesia, the compulsory education is 9 years or until junior secondary school level. Nonetheless, the World Bank estimates that only 55% of children from low-income families enrolled in junior secondary school.[11] This means that 45% of children from a poor working family in Indonesia only have an elementary education. By eliminating cost of education, the possibility of children staying at school could be improved and subsequently better-off their their opportunities.

Moreover, social norms likely contribute to the proliferation of child labour. Children are forced to plunge themselves into the labour market because in some context the practice has been so widespread that it becomes socially accepted. For instance, child labour in the tobacco and cocoa plantation is perceived as normal because for so long children work in plantations to help their families. Education is also a key to break this accepted norm. Not only it increases parents and adult awareness level on the idea of child labour and children welfare but also when the educated children grow up they could make informed decisions on the issue of working children.

Lastly, although some might fail to see the connection, the intensification of the global economy might exacerbates the issue. As multinational corporations move across borders, countries often compete for jobs, investment and industry. This competition likely decelerates child labour reform for the obvious purpose of lower labour cost. In more moderate perspective, the state provides exemption on the use of child labour in the industry to ease corporation burden on accountability and expanding jobs market to people younger than 15 years of age (or 18 years in the case of Indonesia). Additionally, the complexity of multinational supply chains may intensify the use of child labour. International supply chains often consist of multi-layer suppliers and subcontractors including home workers. Cheaper price, which is the primary reason for using subcontractors and homeworkers, lead to the employment of low-cost labour, and one of the low-cost workers group is obviously children.

Existing regulatory framework may not sufficient enough to capture and adress underlying issues of child labour. The government should review the inconsistent children-related policy to get a holistic solution. For instance, the state compulsory education program should be expanded so that it includes children between 15-17 years old which the National Labour Regulations define as children (which bears consequence of child labour label). The state may also want to review its labour policy to ensure decent jobs are available for the working-age people (those 18 years and above). Policy on education, one of the primary vehicles to combat child labour, could be revisited to ensure its accessibility for all children. In addition, establishing robust welfare policy may decrease poverty – issue that has significant relations with the proliferation of child labour. Also, regulator extensive knowledge and analysis about the current and future global economy practice could bring about effective regulatory strategy that likely ease the persistent issue of child labour in many cheap labour reliance industries.

[1] International Labour Organization, What is Child Labour (viewed on 11 October 2017) < http://www.ilo.org/ipec/facts/lang–en/index.htm&gt;.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] International Labour Organization, Modern Slavery and Child Labour (19 September 2017) <http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_574717/lang–en/index.htm>.

[6] Ibid.

[7] Koran Jakarta, Jumlah Tenaga Kerja Anak Semakin Meningkat (12 October 2016) < http://www.koran-jakarta.com/jumlah-pekerja-anak-terus-meningkat/&gt;.

[8] Schuster Institute, Outline of Production: Palm Fruit to Product (viewed on 11 October 2017) <http://www.schusterinstituteinvestigations.org/indonesias-palm-oil-industry>.

[9] Children International, Global Poverty Facts (viewed on 11 October 2017) < https://www.children.org/global-poverty/global-poverty-facts/facts-about-world-poverty&gt;.

[10] Ibid.

[11] The World Bank, World Bank and Education in Indonesia <1 September 2014) <http://www.worldbank.org/en/country/indonesia/brief/world-bank-and-education-in-indonesia&gt;.

Indonesian Labour Movement Focal Points: Decent Wage, Precarious Jobs and Universal Health Care

To commemorate the 10th World Day of Decent Work, thousands of workers, members of the Indonesian Trade Union Confederation, held a rally in front of the Presidential Palace in Jakarta on 7 October 2017.  As reported in all media outlets: the rally agenda, inter alia, includes wage increase up to USD 50 per month in 2018 to ensure decent wage for workers, the elimination of precarious working scheme through outsourcing and internship (magang) and universal health care for all Indonesian citizens.

The focus of Indonesia labour movement is still lingered on the wage discourse showing that welfare in Indonesia context is all about wage. This indicates that welfare support system which arguably the domain of the state is still highly depended on private economy activity regardless the existing welfare policy such as the universal health care (BPJS Kesehatan).

On the other hand, flexibility that a lot of businesses sought for to be able to compete in the national and global market likely disregard the idea of welfare. Thus, the everlasting demands for eliminating outsourcing and internship (magang) practice. This shows that the construction of the Indonesian Labour Act No. 13 of 2003, in some parts, did not include social and collectivism aspirations but to put on the pedestal economic interests.

Untuk memperingati hari Kerja Layak Sedunia yang ke-10, ribuan pekerja, anggota Konfederasi Serikat Pekerja Indonesia, mengadakan unjuk rasa di depan Istana Kepresidenan di Jakarta pada tanggal 7 Oktober 2017 kemarin. Seperti yang dilaporkan di semua media: agenda unjuk rasa, antara lain, menuntut peningkatan upah sebesar USD 50 per bulan pada tahun 2018 untuk memastikan upah yang layak bagi pekerja, penghapusan skema kerja tidak tetap melalui outsourcing dan magang dan perawatan kesehatan universal untuk seluruh warga negara Indonesia.

Fokus gerakan buruh Indonesia masih bertahan dalam wacana upah yang menunjukkan bahwa konteks kesejahteraan di Indonesia adalah tentang upah. Hal ini mengindikasikan bahwa sistem pendukung kesejahteraan yang bisa dibilang sebagian besar merupakan domain negara masih sangat bergantung pada kegiatan ekonomi swasta terlepas dari kebijakan kesejahteraan yang ada seperti perawatan kesehatan universal (BPJS Kesehatan).

Di sisi lain, fleksibilitas yang banyak dicari usaha untuk bisa bersaing di pasar nasional dan global cenderung mengabaikan gagasan kesejahteraan. Dengan demikian, tuntutan abadi untuk menghilangkan praktik outsourcing dan magang (magang). Hal ini menunjukkan bahwa dalam proses pembentukan Undang-undang Ketenagakerjaan Indonesia No. 13 tahun 2003, pada bagian tertentu, tidak mencakup aspirasi sosial dan kolektivisme namun menempatkan kepentingan ekonomi sebagai tumpuan utama.


Implication of Indonesian Constitutional Court Decision No. 72/XIII/2015 on the minimum wage postponement regime

Interestingly enough, although fundamentally minimum wage is the floor wage and safety net which means it is the lowest wage in the labour market for single and unskilled workers, Indonesian Labour Laws recognize a minimum wage postponement mechanism.[1] Employers that were unable to pay minimum wage could postpone the application if the Governor approved. Employers should the obtain union in the enterprise level and /or workers agreement and produce evidence that they have been operating at a loss for two consecutive years before applying for minimum wage postponement to the Governor. Postponement, in this discourse, is waiving the statutory responsibility to pay the prevailing minimum wage. After reviewing postponement application, the Governor could either agreed on wage deferral for a whole year or a certain number of months. The amount itself would not be lower than the last year minimum wage, as stipulated by the concerned regulations.

The minimum wage postponement mechanism had been causing a prolonged debate between trade unions, government, and employers. The regulatory objective to the mechanism is to ensure business could maintain operation even when it at loss and thus workers employment is secured. On the other hand, worker’s right to wage is still protected by setting a lowest (postponement) wage level rather than liberalize postponement negotiation in which the regulator (agency) may eventually have no power to influence. However, trade unions argued that in practice, postponement minimum wage instrument was used to keep labour costs at bay. Instead of genuinely at a loss, businesses that want to control its operation cost select this scheme of which it would not in a position of breaching the regulations that lead to criminal penalties.  It was also repeatedly reported cases, employers, pressing the workers or union to approve postponement proposal by, for instance, threatening workers that if they did not do so, the company would be ceased to operate. Additionally, the minimum wage is a safety net to assure worker a very frugal decent living. Depriving workers of the minimum wage is not in line with the philosophical idea that underpins minimum wage rationale and could have a detrimental effect on worker welfare.

The latter rationale becomes of the Constitutional Court reasoning on the union’s judicial review application. According to the Court in its Decision No. 72/XII/2015, the minimum wage is not only safeguarded of worker’s basic rights but as well as a safety net so that wages to fall to the lowest level. In other words, minimum wage protects the rights of the workers of decent living and welfare. Also, it balances the power relations in the markets where workers often stand on the disadvantaged position due to lack of bargaining capacity. The Court also asserts that in principle, employers are prohibited from paying wages lower than the minimum wage set by the Governor or other government officials concerned as the wage fixing take into consideration to the recommendations of the Wage Council and /or regent/mayor. This shows another fundamental idea of the minimum wage that is not only intended to protect worker’s rights of decent income but also the mechanism of minimum wage fixing takes importance. Wage council, by law, consists of representatives of employers, representatives of trade unions and the Government. Thus, minimum wage itself is a product of industrial relations mechanism set by the law of which recommendation of the Council likely similar with the product of negotiation in contract law. The difference is that unlike contract where usually consists of two parties, there is a third party, a body of law, that perhaps its primary role in the minimum wage fixing is as umpire or mediator.

The Court construes Article 90 of Labour Act No. 13 of 2003 and argues the paragraphs within the Article as contradictory. While Article 90 par 1 stipulates that employers are prohibited from paying lower than minimum wage, and such action is deemed a criminal offense, paragraph 2 provides a leeway for the employers to pay the prohibited criminally sanctioned action. The same degree of law should not repudiate one another. Moreover, it is likely that as non-compliance of paragraph 1 incur a criminal penalty, it takes precedence over paragraph 2. Therefore, the Court found that Article 90 para 2 has no legal force. Payment of minimum wage is mandatory and cannot be moderated.

What is more, the Court asserts that basically minimum wage deferral approval does not necessarily eliminate the obligation of employers to pay the minimum wage difference during the period of suspension. Consequently, if employers obtain permission to suspend the minimum wage from the Governor, they must pay the difference between deferred wage and the applicable minimum wage, in the future. The difference in question is considered an employer debt to the employee.

The direct implication of the Constitutional Court Decision No. 72/XIII/2015 is that paying lesser than minimum wage is no longer a legal option for employers whether they have a valid reason or not. The lowest wage paid to the employee must be at the same rate as the prevailing minimum wage. Nonetheless, the somewhat indirect implication for a heavily dependent on foreign investment country such as Indonesia is that the Government should interfere more on the wage construction in the market, taking into account economic rationale as well as socio-political interest and revisit its welfare policy so that workers well-being level does not entirely depend on their wage. On the other side of the field, employer and trade union should establish a relationship that is not only based on adversary notion in which different interests clashes but to find common ground that could support business operation sustainability but also guarantee workers well-being.

Putusan MK No. 72_XIII_Tahun 2015


[1] See Article 90 of Labour Act No. 13 of 2003