Balancing Act: Indonesia Raises Minimum Wage Amid Economic Concerns
A 6.5% increase in Indonesia’s 2025 provincial minimum wage (UMP) has been approved by the government, aiming to bolster middle-class purchasing power and stimulate economic growth. However, this move has sparked concerns from the Indonesian Employers Association (Apindo), who warn of potential widespread layoffs, especially in labor-intensive sectors already facing economic pressures.
Fine-Tuning the Regulation
Manpower Minister Yassierli confirmed on Tuesday that the ministry is in the final stages of completing the regulation, with an expected completion date of Wednesday. “We are currently preparing the ministerial regulation, and hopefully, it will be ready tomorrow,” Yassierli stated. He underscored ongoing discussions with other ministries to ensure policy synchronization and a balance of stakeholder interests.
“The synchronization process with the Law Ministry is ongoing. We are also holding discussions to anticipate strategic economic challenges,” Yassierli added.
A Compromise in the Making
President Prabowo Subianto gave his approval to the 6.5% wage increase last week, representing a compromise between employer and worker proposals. Employers initially advocated for a 3% hike, while workers sought a more substantial increase of up to 10%.
Targeting Middle-Class Stability
The Central Statistics Agency (BPS) defines Indonesia’s middle class as those earning between Rp 2.04 million and Rp 9.9 million ($65.6 to $625) per month. This wage increase is anticipated to help maintain consumption levels within this demographic, a crucial component of the nation’s economy.
Layoff Concerns Intensify
Despite the potential benefits for consumers, Apindo Chairwoman Shinta Widjaja Kamdani expressed apprehension that the increase could strain businesses and lead to job losses. “Labor-intensive industries will be the hardest hit, potentially leading to fewer job opportunities, diminished productivity, and reduced global competitiveness,” Shinta stated, urging the government to reconsider the decision.
Navigating Tripartite Consultations
The wage increase follows recommendations from the National Wage Council (Depenas) and consultations through the National Tripartite Cooperation Institution (LKS Tripartit), which includes representatives of workers, employers, and the government.
Defending the Decision
Despite Apindo’s warnings, Yassierli defended the government’s position, emphasizing the need to balance economic resilience with worker welfare. “I reported the situation to President Prabowo, and based on discussions and studies, we proposed a 6% increase,” he explained.
Rising Unemployment Adds to Concerns
The decision comes as Indonesia experiences a rise in layoffs nationwide. The Manpower Ministry reports nearly 60,000 job losses as of October 2024, reflecting a significant increase of 25,000 in the past three months.
What strategies is the Indonesian government employing to mitigate potential negative impacts of the minimum wage increase on businesses?
## Balancing Act: Indonesia Raises Minimum Wage Amid Economic Concerns
**Interviewer:** Joining us today to discuss the recent increase in Indonesia’s minimum wage is Alex Reed, an expert in Indonesian labor economics. Welcome to the show.
**Alex Reed:** Thank you for having me.
**Interviewer:** Indonesia has just approved a 6.5% increase in the provincial minimum wage for 2025. This comes at a time when concerns about the global economy are growing. Can you shed some light on the reasoning behind this decision?
**Alex Reed:** The government aims to strike a balance between supporting workers and maintaining economic stability. The 6.5% increase is intended to boost the purchasing power of the middle class, stimulating domestic demand and economic growth.
**Interviewer:** You mentioned balancing act. The Indonesian Employers Association (Apindo) has expressed concerns about potential layoffs, particularly in labor-intensive industries already facing pressure. How can this risk be mitigated?
**Alex Reed:** This is a valid concern. The government is working on fine-tuning the regulations surrounding the wage increase with input from various ministries. [[1](https://tradingeconomics.com/indonesia/minimum-wages)]The aim is to ensure a smooth transition and minimize negative impacts on businesses. The 6.5% figure itself represents a compromise between employer and worker proposals, showcasing the government’s effort to find common ground.
**Interviewer:** Manpower Minister Yassierli has stated that the final ministerial regulation will be ready soon, emphasizing ongoing discussions to anticipate economic challenges. What are some of these anticipated challenges, and how might the government address them?
**Alex Reed:** Global economic uncertainty, inflation, and potential slowdown in demand are some key challenges. The government’s strategy involves close monitoring of the economic situation and adjusting policies as needed. They are also encouraging dialog and collaboration between employers and workers to find solutions that benefit both sides.
**Interviewer:** This seems to be a delicate balancing act for the Indonesian government.
**Alex Reed:** Absolutely. It requires careful consideration of both economic growth and the wellbeing of the workforce. The success of this policy will depend on continued communication and collaboration between all stakeholders.
**Interviewer:** Thank you for sharing your insights on this critical issue.
**Alex Reed:** My pleasure.
