2021 Minimum Wage

KOMPAS/BAHANA PATRIA GUPTA

Labor activists raise their fists during a peaceful rally to protest the Job Creation Law on Tuesday (27/10/2020) outside the East Java Governor’s office in Surabaya.

The government has decided not to increase the minimum wage for 2021. It has also implied that the basic cost of living (KHL) will not be used as a consideration for future minimum wage calculation.

This is definitely not a decision that is going to be well received by workers, but the government has stated that this is the best decision that can be made amid the current situation. The Manpower Minister said the decision was a middle road to accommodate the interests of both workers and employers who were equally hit by the COVID-19 pandemic. It is to ensure businesses’ sustainability as well as to maintain employment for workers.

According to the Manpower Minister, the government has prepared social aids programs to maintain the household purchasing power despite the absence of a minimum wage increase. Although at least 25 provinces have declared that they will be implementing this decision, there have been strong reactions from labor unions who deem that the government is only catering toward business interests, as is the case with the Job Creation Law.

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These labor groups are going to stick to their demand for an increase in the minimum wage. They have threatened to hold massive demonstrations across the country. A similar reaction is also shown for the plan to eliminate KHL as the basis for future minimum wage calculation as it is seen to be threatening workers’ welfare.

Kompas/Wawan H Prabowo

Coordinating Minister for the Economy Airlangga Hartarto handed over the government\'s response on the discussion of the Omnibus Law on the Work Creation Bill (RUU) to the Chairman of the Indonesian Parliament Puan Maharani at the DPR RI plenary meeting at the Parliament Complex, Senayan, Jakarta, on Monday (5/10/2020).

All parties need to keep a cool head in facing this situation. If the problem over the minimum wage goes out of control, it will discourage investors and worsen the business climate in Indonesia. This is in contrast to what the Job Creation Law is intended to address.

We truly understand the difficult situation faced by workers who are affected by the COVID-19 pandemic, especially with the decreasing income and the increasing number of lay-offs. However, forcing to increase the minimum wage while businesses are trying to survive will only hurt workers in the long-run if it led companies to close and lay off their employees. A survey from Statistics Indonesia and the Indonesian Institute of Sciences (LIPI) has shown that the lay-off rate will remain high if the spread of COVID-19 cannot be managed.

On the other hand, it will also lower household spending and purchasing power, which will ultimately make it harder for us to get out of the recession.

Financial stimulus and tax relaxation programs have been unable to fully tackle the impact of the pandemic for businesses. This is made even worse by the low absorption rate of the stimulus. For the government itself, maintaining the level of the minimum wage is like a double-edged sword. Not increasing the minimum wage will keep companies from cutting off their employees. On the other hand, it will also lower household spending and purchasing power, which will ultimately make it harder for us to get out of the recession.

So far, despite the number of aid programs for workers, many of those schemes have been unable to reach the majority of formal workers, let alone the informal ones. This is why strengthening social safety nets is important, particularly through widening the target of direct cash transfer programs to worker groups that have yet to be protected by the current programs. The failure to ensure this will not only affect workers’ welfare and social stability, but also Indonesia’s economic recovery.

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For employers, those who can afford it should also show their goodwill and not use the pandemic as a reason to not increase the minimum wage. The willingness of all parties to work together in facing these hard times is crucial.