Indonesia Implements New Living Wage Standards for Minimum Wage Calculation

Enhanced Methodology for Provincial Variations

The Indonesian Ministry of Manpower (Kemnaker) has introduced updated Living Wage (KHL) data for all provinces across Indonesia, marking a significant shift in how minimum wages will be calculated for 2026. This update incorporates the International Labour Organization (ILO) standard methodology, ensuring a more comprehensive assessment of living costs ¹

Key Components of the New Living Wage Calculation

The KHL now considers four primary household consumption components:

1. Food and beverages
2. Health and education
3. Other essential needs
4. Housing/living arrangements

This approach represents a more nuanced understanding of living costs across different provinces, allowing for more targeted minimum wage adjustments. The calculation is the result of a collaborative effort between Kemnaker, the National Economic Council (DEN), and the Central Statistics Agency (BPS) ¹

Implications for Minimum Wage Determination

The updated KHL data will serve as a crucial reference in calculating the minimum wage for 2026, enabling more flexible adjustments that reflect the economic conditions of each province. This marks a departure from previous practices where wage increases were more standardized across regions. The new system incorporates the KHL data into the wage calculation formula, particularly in determining the 'alpha' value - an index that measures labor's contribution to economic growth ²