Indonesia Wage Support Policy during Covid-19

Covid-19 pandemic continues to slow down Indonesia economic output. It has also fundamentally affecting the Indonesia workforce – especially for low wage workers. Pandemic-induced job losses, underemployment, lost of productivity, and education interruption, put a strain on the common households.

The current Minister of Manpower Regulation No. 14 of 2020 issued on 14 August 2020 intents to give a much needed break for the Indonesia formal workforce while keeping skilled workers rate of participation in the labour market. Article 2 of the Minister of Manpower Regulation Government in question stipulates that the assistance in the form of subsidized salary/wage for workers/laborers aims to protect, maintain, and increase economic capacity on workers/laborers in handling the impact of the Corona Virus pandemic.

The Government wage subsidy assistance is given in the form of money amounting to IDR 600,000 per month (equivalent to US$ 40.69) for four months from the issuance of the Regulation or as per availability of the Ministry of Manpower budget ceiling concerning the implementation of the wage subsidy policy (Article 4).

The wage subsidy only applied for formal workers who receive wage less than IDR 5,000,000 per month (equivalent to US$ 340) from their employer and registered in the Employment Social Security (BPJS Ketenagakerjaan) up to June 2020 (Article 3).

The Employment Social Security agency will verify and validate the wage subsidy recipient data and transfer it to the Budget User Proxy (Kuasa Penerima Anggaran/KPA) that is the official at the Directorate General Development of Industrial Relations and Labour Social Security. Payment of the wage subsidy to the verified recipients would be done by designated Government Banks (Article 5 and 7).

Although, the Ministry of Manpower Regulation No. 14 of 2020 likely lessen the gravity of financial burden of the common household, as the Regulation only applies for formal worker in a formal employment relations, it does nothing to help the informal and gig economy workers – those who are at the very bottom of the labour market food chain. This group of workers, which before the pandemic reached around 70 million workers, typically did not have secure employment contracts, benefits or social protection.

Also, the processes of the disbursement of funds could be improved. It further initiates question about a much streamlined administration processes during national emergency. Also, discourse on eradication of unnecessary bureaucracy in the era of governmental administrative reform.

The Article on Ministry of Manpower budget ceiling concerning the implementation of the wage subsidy policy creates a notion of transparency on budget management. Whether or not a statement of budget ceiling should be specified and informed to all stakeholders for the purpose of external monitoring on the agency accountability and program impact (Chapter V of the Regulation stipulates internal monitoring by the Director General).

Lastly, the Regulation does not provide complaint or appeal avenue for recipient candidates who are rejected during the verification and validation, or wage subsidy recipients who later on are deemed as false recipients. In other words, the Regulation does not guarantee procedural justice for the already strained workforce.

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Indonesia Covid-19 affected- Economy and its Ramification on the Determination of the 2021 minimum wage

At the beginning of 2020, not one person in Indonesia, including policy makers, thought that Covid-19 would become a global pandemic that negatively affected the economy. As is well known, the macroeconomic assumptions noted in the 2020 State Budget show economic growth of 5.3%. This figure is obtained from Indonesia’s economic growth in 2019 to the second quarter of 2020. Until recently, the Minister of Finance of the Republic of Indonesia stated that in the worst case scenario, Indonesia’s economic growth rate could reach – 0.4%. Meanwhile, the Coordinating Minister for Maritime Affairs and Investment stated that the bad impact of Covid-19 on the Indonesian economy will be felt for the next 5 years.

Further, several economists predict that the unemployment rate in 2020 and 2021 will increase sharply compared to 2019. At the end of 2019, the Government of the Government is targeting the 2020 unemployment rate to fall to 4.8%. As a result of the pandemic, the National Development Planning Agency (Bappenas) estimates the Open Unemployment Rate (TPT) in 2020 will reach 8.1% to 9.2% and the unemployment rate is estimated to increase by 4 to 5.5 million people. Furthermore, in 2021, the TPT is estimated to reach a range of 7.7% to 9.1%.

The decline in Indonesia’s economic growth rate and the increase in unemployment during the Covid-19 period likely caused by a decrease in consumption power that parallel to the decline of national consumption activities, decline in production and other economic transactions (trade and investment), economic stagnation, and social turmoil.

In this gloomy of economic future, how will the country approach the issue of annual minimum wage increase?

The general informal protocol of determining next year minimum wage prescribe a central government directive, in this case from the Minister of Manpower, to the regional governments and its local officers to start the discussion on minimum wage. Usually this directive is issued every end of July to early August of the current year. The discussion will include related stakeholders such as the employer/industry association, trade unions, and the relevant government agency. Manpower Minister Regulations stipulates the issuance of the provincial minimum wage on 1 November, and the regent/city minimum wage by the latest on 21 November. Of the calculation formula, the same Regulation as delegated by the contentious Government Regulation No. 78 of 2015 prescribed the formula of the minimum wage calculation based on economic indicator of national inflation rate and gross domestic growth.The National Regulations on Minimum wage also stipulate the determination of minimum wage to be held annually.

Considering the Indonesia Labour Regulations does not adopt the contract law of force majeure principles; at the face value, the determination of the 2021 minimum wage should go through the normal process. Then again, if the economic indicator shows a strong indication of negative growth, will the number of the 2021 minimum wage decrease compare with the current 2020 minimum wage? Even if the relevant stakeholders agreed to increase the 2021 minimum wage, could the industry implement it? Also, the tight labour market in the era of pandemic likely exacerbate non-conformance of minimum wage anywise.

Looking at the challenges, there are several points the national stakeholders and policy makers could consider to address the 2021 minimum wage:

-Delay increment of the minimum wage for at least one year and have the 2020 minimum wage applied until 31 December 2021.

-The Government to create a periodic price interventions for basic commodities including providing subsidy, together with economic stimulus package for strategic industry in Indonesia to keep consumption, production and unemployment rate in an acceptable level.

-Labour policy makers and relevant stakeholders to review the annual minimum wage determination to a longer period of 3-5 years, and start conversing about one national minimum wage, one provincial minimum wage and industry specific minimum wage which could cut the complexity of labour remuneration regime in Indonesia, increase social dialogue between all actors and increase market flexibility.

-Increase labour force skills and adaptability to fit with the new industry normal.

-Adopt force majeure principle in the Indonesia labour regulations that include a fair and just contingency mechanism.

What is going to happen in the next few months concerning the 2021 minimum wage is as unpredictable as the discourse of when the pandemic would end. Hopefully, these last 4 months of the 2020 will as well serve as a learning curve for the labour policy makers to find the fittest solution for an ever difficult problem.