The Ramification of the Government Regulation No. 78 of 2015 and Manpower Regulation No. 15 of 2018 on Indonesia Minimum Wage Setting Principle

Minimum wage is the lowest safety net wage allowed by law or by agreement between worker/worker union and employer. In Indonesia, the minimum wage is set in a monthly sum and intended to cover basic needs of one single unskilled employee with tenure of less than one year. Minimum wage is approved or issued by the Governors.

Article 1 (1) of the newly issued Minister of Manpower Regulation No. 15 of 2018 states that minimum wage is the lowest wage consisting of basic wage or basic wage and fixed allowance set by the Governors as a safety net. Indonesia labor regulations also stipulate that employers are prohibited from paying employees lower than the prevailing minimum wage.

Previous wage regulation stipulated that minimum wage is set yearly through an independent tripartite council (wage council) consists of employer association, trade union/s and government. Meaning that every provinces, district and regency could set their own minimum wage increment formula based on negotiation between employer association and trade union/s or employee associations. When the government was silent or taking side on populist public policy for political reasoning, the tripartite approach of minimum wage setting likely problematic. In 2014-2016, for instance, minimum wage increment in DKI Jakarta and Bogor district/city erratically spiked. Unpredictable increment negatively impact local, national and multi-national business which heavily relied on labor (labour intensive industries).

The Government Regulations No. 78 of 2015, on the other hand, stipulates minimum wage setting based on a formula consisted of inflation rate and national economic growth. This stipulations is echoed by Article 2 of the Minister of Manpower Regulation No. 15 of 2018. Further, Article 9 and 11 stipulates calculation of (provincial/municipal) minimum wage is conducted by the respective wage council. Taking it at face value, it seems Wage Council still play pivotal roles on minimum wage fixing. However, in practice the Central Government through the Minister of Manpower issue a set percentage (of yearly inflation rate and gross economic growth) which the Governors should follow. In addition, Article 3 of the of the Minister of Manpower Regulation No. 15 of 2018 regulates the minimum wage calculation formula which is based on the principle stipulates by the of the Minister of Manpower Regulation No. 15 of 2018.

Thus, it likely regional wage council only plays a role of a cashier checking a fixed price goods through a scan machine instead of setting the minimum wage. Consequently, the voice of workers (trade union/s) is silent in this setting. Without diminishing the importance of predictability of the current minimum wage setting regulations, social dialogue and sound industrial relations principles which underline the wage council tripartite system become less respected by the social partners in other aspect of workplace relations.

Another point to think about is the stance of the government on regulating labor. Emphasizing business and foreign investment security in the minimum wage discourse shows that the administration to be expected takes the side of business. Presumably, labor welfare and demands take a back seat in the current development of national labor policy and strategy.

The Minister of Manpower Regulation No. 15 of 2018 still adopts the previous minimum wage scaling. Industry minimum wage (upah minimum sektoral/UMS) sits on the highest level. Municipal minimum wage (upah minimum kabupaten/kota or UMK) is on the second level, and Provincial minimum wage is on the bottom level as a floor wage/basic amount for Municipal minimum wage and Industry minimum wage calculation.


PP No. 78 Tahun 2015

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