Executive Summary

Key insights and market outlook

The Indonesian government, led by President Prabowo Subianto, has issued a new wage regulation for 2026, introducing a formula that includes inflation rate and economic growth with an alpha index between 0.5-0.9. Labor unions reject the regulation, citing lack of involvement in its formulation ¹

. The new formula gives regional flexibility in determining minimum wage increases, with governors required to announce decisions by December 24, 2025 ⁵.

Full Analysis

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Deep Dive Analysis

Indonesian Government Introduces New Minimum Wage Formula for 2026

Controversy Surrounds New Wage Regulation

The Indonesian government, under President Prabowo Subianto, has officially introduced a new formula for determining the provincial minimum wage (UMP) for 2026 through a Government Regulation (PP) on wages ¹

. The new formula, Inflation + (Economic Growth x Alpha), incorporates an alpha index ranging from 0.5 to 0.9, significantly higher than the previous range of 0.1 to 0.3 ⁴.

Labor Unions Reject New Regulation

Labor unions, represented by the Indonesian Workers Confederation (KSPI), strongly oppose the new regulation, citing their exclusion from the formulation process ¹

. KSPI President Said Iqbal argued that the regulation could harm workers' interests, particularly regarding the definition of Decent Living Needs (KHL). The union claims they were only involved once in a 2-hour discussion on November 3, 2025, which they considered mere socialization rather than meaningful consultation ¹.

Government's Perspective on New Formula

Minister of Manpower, Yassierli, defended the new regulation, stating that the expanded alpha index was decided by President Prabowo after considering various aspirations, including those from labor unions ⁴

. The government maintains that the new formula provides flexibility for regions to determine wage increases based on their economic conditions. Yassierli emphasized that the final decision on the alpha value between 0.5 and 0.9 will be made by regional authorities ⁶.

Implementation Timeline

Governors are mandated to announce the UMP for 2026 by December 24, 2025, using the new formula. The Wage Council at the provincial level will calculate the increase based on the formula and recommend it to the governor ⁵

. Despite concerns from labor unions, some organizations like KSPSI see the formula as a potential middle ground ⁶.

References