Indonesia Implements Formula-Based Minimum Wage Calculation for 2026

Shift from Uniform Percentage Increase

The Indonesian government has decided to implement a formula-based approach for determining the provincial minimum wage (UMP) starting in 2026. This marks a significant departure from the previous system where all provinces received a uniform percentage increase. For 2025, UMP was set to increase by 6.5% across all provinces.

Regulatory Framework

The new formula is based on Government Regulation No. 51/2023, which modifies the previous regulation (PP No. 36/2021) concerning employment compensation. The formula incorporates various economic indicators, with a particular focus on the province's economic growth and a variable alpha value.

Alpha Value Adjustment

The alpha value, representing labor's contribution to economic growth, is a critical component of the formula. Previously, alpha was set within a range of 0.10 to 0.30. According to Minister of Manpower Yassierli, the government is currently finalizing the specific alpha value for the 2026 calculation.

Provincial Variations Expected

The implementation of this formula-based system means that different provinces will experience different minimum wage increases based on their individual economic conditions. This approach is expected to provide a more nuanced and economically responsive method of setting minimum wages across Indonesia's diverse regions.

Implementation Timeline

The decision was announced on November 28, 2025, as the government prepares for the 2026 UMP determination. The exact alpha value and final formula parameters are pending finalization, with the new UMP rates expected to be announced subsequently.