Executive Summary

Key insights and market outlook

The Indonesian government has finalized new wage regulations through Government Regulation (PP) No. 49/2025, effective immediately ⁵

. The new policy introduces a wage calculation formula: Inflation + (Economic Growth x Alpha), with Alpha ranging between 0.5-0.9 ⁴. Labor unions demand a minimum 6.5% wage increase for Jakarta ⁴, while business groups express concerns about the impact on companies already facing challenges ³.

Full Analysis

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Deep Dive Analysis

Indonesian Government Implements New Wage Policy Amid Labor Concerns

New Wage Calculation Formula Introduced

The Indonesian government, led by President Prabowo Subianto, has enacted Government Regulation (PP) No. 49/2025 on December 17, 2025, introducing significant changes to the country's wage policy ⁵

. The new regulation establishes a formula for calculating the provincial minimum wage (UMP): Inflation + (Economic Growth x Alpha), where Alpha ranges between 0.5 and 0.9 ⁴. This formula aims to balance workers' purchasing power with business sustainability.

Stakeholder Reactions Vary

Labor unions, represented by the Indonesian Workers Confederation (KSPI), are demanding a minimum 6.5% increase in Jakarta's minimum wage for 2026, similar to the previous year's adjustment ⁴

. They argue that using the upper limit of Alpha (0.7-0.9) is necessary to maintain workers' living standards. However, business associations like APINDO express concerns that the new formula, particularly the upper limit of Alpha (0.9), could burden companies already struggling with economic challenges ³.

Economic Context and Implications

The new wage policy comes as various industries face economic pressures. Data shows that sectors such as textiles (0.93% growth), footwear (-0.25%), tobacco processing (-0.93%), furniture (-4.34%), and rubber/plastics (-3.2%) are experiencing slow or negative growth ³

. The automotive sector also contracted by 10% year-over-year as of October 2025 ³. These economic conditions have influenced the debate around the appropriate Alpha value to be used in the wage calculation formula.

Government's Stance and Future Outlook

Labor Minister Yassierli assured that the delayed announcement of the 2026 UMP was an exception due to the new PP being issued late ¹

. He also mentioned that many parties have appreciated the new wage regulation as the "best formulation" currently available ². The government now faces the challenge of balancing workers' demands with business concerns while maintaining economic stability.

References