Analysis: regional elections and legal uncertainty block the increase in the minimum wage - Academia

The Indonesian government has decided to delay the annual increase in provincial minimum wage (UMP) rates, raising questions about its implications for workers, businesses and the political landscape. Initially scheduled for November 21, 2024, the salary adjustment will now wait until after the country’s regional elections. The move follows a ruling by the Constitutional Court (MK) and an ongoing dispute over minimum wage regulation.

According to Government Regulation (PP) No. 51/2023, the UMP increase was previously to be announced by November 21, 2024. However, on November 20, 2024, the Ministry of Manpower announced a delay. This decision follows the Labor Party’s successful proposal to seek judicial review of Law No. 6/2023, which served as the underlying regulation for PP No. 51/2023 and the most recent version of the Law controversial on job creation. Therefore, PP n°51/2023 can no longer serve as a reference for calculating the increase in the UMP.

On October 31, 2024, the MP declared 21 provisions of Law No. 6/2023 conditionally unconstitutional, in particular those on salaries and the minimum wage. As a result, the regulations governing the minimum wage reverted to the old Law No. 13/2003. The court also asked the government and the House of Representatives (DPR) to draft a comprehensive labor law incorporating these legal frameworks within two years.

This delay also reflects unresolved disagreements during the meetings of the National Tripartite Cooperation Institution (LKS) on November 4, 2024 and the National Wage Council on November 5, 2024. These meetings failed to reconcile views differences between unions and companies regarding the formula. for the calculation of the increase in the UMP. According to CORE Indonesia Executive Director Mohammad Faisal, real wages in Indonesia increased by only 0.7 percent in the first half of 2024, compared to economic growth of 5 percent during the same period.

To add to the complexity, a draft ministerial labor regulation on the minimum wage would contain controversial provisions. One proposed provision would introduce separate minimum wage categories for labor-intensive and capital-intensive sectors, while another would allow struggling companies to negotiate wages bilaterally. According to the Chairman of the Confederation of Indonesian Trade Unions (KSPI), Said Iqbal, both proposals could violate the MP’s decision. Labor Minister Yassierli confirmed that these provisions were part of the first drafts, but noted that their inclusion in the final regulation remains undecided.

A potential interim solution would be to increase the discretion of governors to set the alpha multiplier in the UMP calculation formula, thus allowing a balance between the interests of businesses and those of workers. However, such a move risks being politicized, as gubernatorial candidates could propose worker-friendly wage increases as an electoral strategy, which could deter investors.

President Prabowo Subianto said the revised ministerial labor regulation regarding the UMP increase is expected to be finalized by the end of November 2024 and published in early December 2024. Meanwhile, the delay could help alleviate political exploitation of minimum wage policy during elections. period.

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