Executive Summary

Key insights and market outlook

Indonesia's government has introduced a new formula for calculating the 2026 minimum wage, potentially increasing it by 7-9% ³

. The new formula: Inflation + (Economic Growth × Alpha), with Alpha ranging between 0.5-0.9, marks a significant shift in wage policy. This change has sparked mixed reactions from businesses and labor groups, with concerns about potential impacts on industrial growth and employment rates ⁴.

Full Analysis

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Deep Dive Analysis

Indonesia's 2026 Minimum Wage Policy: Economic Implications and Stakeholder Reactions

New Wage Formula Introduced

The Indonesian government, led by President Prabowo Subianto, has implemented a new formula for determining the 2026 minimum wage ²

³. The formula combines inflation rate and economic growth adjusted by an 'Alpha' factor, now ranging between 0.5 and 0.9 ³. This represents a significant increase from the previous range of 0.1-0.3, potentially leading to higher minimum wages across provinces.

Regional Minimum Wage Projections

The impact of this new formula varies across regions. For Jakarta, the capital city, the minimum wage is projected to increase to between Rp 5.67 million and Rp 5.78 million per month ²

. In North Sumatra, the provincial minimum wage for 2026 has been set at Rp 3.228 million, representing a 7.8% increase from the previous year ¹.

Business Community Concerns

The business community, represented by organizations like Kadin Indonesia and Apindo, has expressed concerns about the potential negative impacts of the wage increase ⁴

⁵. Key concerns include:

Increased operational costs for businesses, particularly in labor-intensive sectors
Potential layoffs due to higher labor costs
Reduced investment attractiveness as companies might hesitate to expand operations in Indonesia
Impact on non-oil and gas manufacturing sector that is considered sensitive to wage changes

Labor Perspective

While specific labor responses were not detailed in the sources, the government's decision to increase the Alpha range is seen as a measure to enhance worker welfare and align with court rulings ³

.

Economic Implications

The new wage policy has both immediate and long-term economic implications:

Short-term effects: Potential increase in consumer spending due to higher wages
Long-term effects: Possible slowdown in industrial growth if not accompanied by productivity improvements
Investment impact: Risk of reduced foreign investment if perceived as unfavorable business environment

Government's Balancing Act

The government faces the challenge of balancing worker welfare with business sustainability. To mitigate potential negative impacts, Kadin has suggested implementing supporting policies such as: