The 2021 Minimum Wage Setting

In one of our posts from August 10, 2020 we had proposed a point of thought to postpone increment of the minimum wage for at least one year and have the 2020 minimum wage applied until 31 December 2021. The primary reasoning for this point of though is the unfavorable economic picture as a result of the Covid-19 pandemic will likely last for at least two years. Also that pushing an increased minimum wage likely exacerbate non-conformance of minimum wage anywise as businesses are struggling to keep their operations going.

Similar reasoning seemed to be used by the Government of Indonesia when issuing the recent Ministry of Manpower Circular Letter No. M/11/HK/04/X/2020 signed on 26 October 2020. Point C of the Circular Letter in question read the following:

C. Determination of the 2021 Minimum Wage
Taking into account Indonesia’s economic conditions during the COVID-19 pandemic and the need for national economic recovery, the Governor is requested to:

  1. make adjustments to the determination of the 2021 minimum wage to be the same as the 2020 minimum wage;
  2. to determine the minimum wage after 2021 in accordance with statutory provisions;
  3. set and announce the 2021 provincial minimum wage on 31 October 2020.

Although the above seems to be the most logical administrative decision on the subject matter considering the current situation, major trade unions in Indonesia will not accept the 2021 minimum wage decision/s lightly. One of the major trade unions, Konfederasi Serikat Pekerja Indonesia (KSPI), has condemned this circular letter, stating that increase in the minimum wage next year will in fact encourage economic growth due to increase in the purchasing power of workers. Also, that the Minister of Manpower only takes into account the interests of employers alone. Further, KSPI threatens to conduct large-scale demonstrations and warn the Government of exacerbation of union activism against unpopular administrative decisions and labour regulations which include the circular letter in question and the contentious Omnibus Law.

It appears the last two months of the year 2020 is going to be a bumpy road for Indonesia Industrial Relations, with potential escalation of conflict between the relevant stakeholders.

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