Executive Summary

Key insights and market outlook

The Indonesian government, led by President Prabowo Subianto, has introduced a new formula for calculating the 2026 minimum wage: Inflation + (Economic Growth x Alpha) with Alpha ranging between 0.5 and 0.9 ¹

²³. This decision, formalized through a Government Regulation (PP) signed on December 16, 2025, gives regional wage councils flexibility in determining wage increases based on local economic conditions ². Labor unions have expressed mixed reactions, with some rejecting the formula as potentially limiting wage growth to 3-4% ⁵.

Full Analysis

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Deep Dive Analysis

Indonesian Government Introduces New Minimum Wage Formula for 2026

Key Components of the New Formula

The Indonesian government has officially introduced a new formula for calculating the minimum wage for 2026 through a Government Regulation (PP) signed by President Prabowo Subianto on December 16, 2025 ¹

². The formula combines inflation rate and economic growth with an alpha index that ranges between 0.5 and 0.9 ¹. The alpha index represents labor's contribution to economic growth at provincial or district/city levels ².

Implementation and Regional Flexibility

The new regulation gives significant flexibility to regional wage councils (Dewan Pengupahan Daerah) to calculate wage increases based on local economic conditions ²

. Provincial governors are required to announce the new minimum wage rates by December 24, 2025, effective January 1, 2026 ². This approach allows for differentiated wage adjustments across regions based on their specific economic performance.

Stakeholder Reactions

Labor unions have expressed mixed responses to the new formula. The Indonesian Workers Confederation (KSPSI) rejected the formula, projecting that it would limit wage increases to around 3-4% ⁵

. In contrast, the Nusantara Workers Confederation (KSPN) respected the government's decision, acknowledging that the alpha index range of 0.5-0.9 was relatively more accommodating to workers' aspirations ⁴.

Economic Implications

The new formula represents a shift towards a more nuanced approach to wage setting, considering both national economic indicators and regional economic conditions. While this provides flexibility, it also raises concerns about potential disparities in wage adjustments across different regions. The government's approach aims to balance economic growth considerations with worker welfare, though the actual impact will depend on how regional authorities implement the new guidelines.

References