Maintaining Workers' Purchasing Power

KOMPAS/KRISTI DWI UTAMI

Workers are active in the Takaru Small Industry area, Kramat District, Tegal Regency, Saturday (25/9/2021).

The 2022 minimum wage rise is predicted to be small. A middle ground is needed so that the purchasing power of workers does not decline and at the same time, it does not burden business actors who have not yet recovered from the impact of the pandemic.

JAKARTA, KOMPAS — The increase in the minimum wage in 2022, based on the new formula, is expected not to be as high as in previous years. The new wage policy needs to be accompanied by various incentives and social assistance so that the purchasing power of workers does not decline and economic recovery can be maintained.

Data on the economic indicators used to calculate the minimum wage for 2022 will be released by Statistics Indonesia (BPS) on Friday (11/5/2021). With the latest economic indicators, the new minimum wage is expected to be announced by the Manpower Ministry next week.

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Based on a rough simulation, the increase in the minimum wage, based on the new formula stipulated in Law No. 11/2020 on job creation, is expected not to be as high as in previous years. The National Wage Council (Depenas) estimates that the minimum wage will increase by between 2 and 3 percent from the current minimum wage (Kompas, 26/10/2021).

In comparison, for the last five years, the minimum wage increase has always been above 8 percent. The minimum wage increased 22.2 percent in 2014. At that time, the calculation of the minimum wage was still based on a survey of the components of a decent living requirement (KHL). After the implementation of the Job Creation Law, the minimum is calculated under a new formula that relies on macroeconomic data issued by BPS.

For example, the minimum wage in Jakarta is currently set at Rp 4.27 million. Based on the new formula, if Jakarta's economic growth is assumed to grow 6.01 percent, inflation 3 percent, the average consumption per capita is Rp 2.15 million, the average number of household members is 4.3 and the average number of household members who work is 1.8, then the minimum wage for Jakarta is Rp 4.36 million. Using the old formula, assuming the same economic growth and inflation data, the Jakarta minimum wage would be Rp 4.66 million.

KOMPAS/VINA OKTAVIA

Minister of Tourism and Creative Economy Sandiaga S. Uno while reviewing one of the  Micro, Small and Medium Enterprises (SMEs) stands at the 2021 Indonesian Creative Appreciation event in Bandar Lampung, Saturday (23/10/2021). It is believed that the recovery of the tourism sector and the creative economy will accelerate economic recovery in the midst of the pandemic.

The executive director of the Center of Reform on Economics Indonesia, Mohammad Faisal said in Jakarta on Thursday (4/11) that workers' purchasing power should be maintained in the midst of a crisis because it would determine household spending and economic growth. If purchasing power declines, the aggregate consumption will weaken and post-pandemic economic recovery will be hampered.

Therefore, an increase in the minimum wage in the midst of a crisis is a necessity. If the minimum wage next year does not increase significantly, it will also have an impact on people's purchasing power. Moreover, due to the pandemic, wage cuts have occurred in almost all business fields.

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According to him, there needs to be a middle ground so that the minimum wage policy does not erode the purchasing power of workers, but at the same time, it must not burden business activities, which have not yet fully recovered from the impact of the economic crisis due to the Covid-19 pandemic.

"The wage policy can't be imposed on all entrepreneurs because some entrepreneurs are also in trouble at the moment. There must also be government intervention to maintain the purchasing power of workers," he told Kompas.

The problem is that the government is expected to reduce spending on social protection in a bid to cut the budget deficit.

Faisal said the government needed to balance a slight minimum wage increase with social protection policies and incentives for workers, for example, by providing wage subsidies on an annual basis that are given more broadly. The problem is that the government is expected to reduce spending on social protection in a bid to cut the budget deficit.

Waiting for BPS

Meanwhile, Depenas vice chairman Surnadi confirmed that the 2022 minimum wage may not increase as high as before due to the use of the new formula. Depanas estimates an increase of 2 to 3 percent, depending on the latest economic indicators to be announced by BPS.

HUMAS PEMKOT SURABAYA

Mayor of Surabaya Eri Cahyadi visits  Micro, Small and Medium Enterprises (SMEs)  outlets at Surabaya Fashion Week (SFW) 2021, at the Main Atrium of Grand City Surabaya, Sunday (31/10/2021).

He said all the required data from BPS should be available on Friday. The data will be processed at the central level according to the new formula. Depenas has requested that the Manpower Ministry announce the 2022 minimum wage on 10-12 Nov.

"Indeed, the regulation states that the deadline is 21 November at the latest, but we want it to be faster because the regional wage councils must discuss the minimum wage in their respective regions," said Surnadi.

In total, there are 20 types of data that BPS must provide for calculating the minimum wage and special wages for micro and small enterprises. Some of the data needed to calculate the 2022 minimum wage are economic growth in the third quarter of 2021, the average consumption per capita, the average number of household members and the average number of household members who work.

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BPS also needs to issue poverty figures in each province for the calculation of the minimum wage for micro and small enterprises. Meanwhile, in determining the district/city minimum wage, it will for the first time use additional data on purchasing power parity, median wage and open unemployment rate.

Surnadi hopes the government can offset the slight wage increase by providing higher subsidies for workers.

The secretary general of the Manpower Ministry, Anwar Sanusi, said the government would consider various inputs from the workers and employers in determining the new minimum wage. "We will certainly take the best policy by considering many aspects," said Anwar.

WAK

The chairman of the Indonesian Employers' Association Hariyadi Sukamdani.

Workers have asked for a 7 to 10 percent increase in the minimum wage, but it is opposed by the employers as most business sectors have not yet recovered from the impact of the pandemic that has hit the economy in the last 1.5 years.

“We hope that local governments will follow PP No. 36/2021 on wages. Moreover, the pandemic condition demands an acceleration of economic recovery through employment," said the chairman of the Indonesian Employers' Association Hariyadi Sukamdani.

(This article was translated by Hendarsyah Tarmizi)