Indonesia Introduces New Minimum Wage Calculation Formula for 2026

Background and Stakeholder Reactions

The Indonesian government has announced a new formula for determining the 2026 minimum wage, marking a return to the pre-2025 calculation mechanism. This decision has elicited responses from both labor unions and business associations. The change represents a shift from the 2025 policy where the minimum wage was uniformly increased by 6.5% across all regions as announced by President Prabowo Subianto.

Labor Union Perspective

Ristadi, President of the Confederation of Nusantara Workers' Union (KSPN), stated that the new mechanism reverts to the previous system where the wage council recommendations are considered by governors. KSPN had previously submitted three key points to President Prabowo, Minister Yassierli, and Coordinating Minister Airlangga Hartarto on October 16, 2025:

1. Opposing a uniform percentage increase across Indonesia
2. Requesting consideration of significant regional wage disparities
3. Advocating for lower-wage regions to receive more substantial increases

Business Community Response

Bob Azam, Chairman of Apindo's Labor Affairs division, expressed that the business community was only informed through media reports. He urged the government to expedite the regulatory framework for minimum wage calculation. Azam emphasized that the minimum wage should serve as a lower bound, while effective wages should be determined bilaterally between employers and employees based on company-specific conditions.

Technical Details of the New Formula

The formula for calculating the minimum wage is based on Government Regulation No. 51/2023, which states:

• UM (t+1) = UM (t) + Adjustment Value x UM (t)
• Adjustment Value = {Inflation + (PE x alpha)} x UM(t) Where:
• UM (t+1) is the minimum wage to be set
• UM (t) is the current minimum wage
• Inflation is measured at the provincial level from September to September
• Alpha ranges between 0.10 and 0.30, representing labor's contribution to economic growth

Implications and Future Outlook

The return to the previous mechanism gives governors more discretion in setting minimum wages, potentially leading to more regionally differentiated adjustments. This approach aims to address the significant disparities in minimum wages across different regions, ranging from approximately Rp 2.1 million in Banjarnegara to Rp 5.6 million in Bekasi. The new formula is expected to have varying impacts across different provinces, reflecting local economic conditions and cost of living adjustments.