If the 2023 minimum wage is still based on the formula stated in Government Regulation No. 36 of 2021, an increase in inflation will continue to erode the buying power of the workers.
By
AGNES THEDOORA, MAWAR KUSUMA WULAN
·6 minutes read
KOMPAS/RADITYA HELABUMI
Women workers from various trade unions take part in a demonstration in front of the DPR/MPR Building, Jakarta, Wednesday (15/6/2022).
JAKARTA, KOMPAS — The upward trend in inflation will further erode the people's buying power, given the small increase in the minimum wage. In order to maintain the people’s buying power, the minimum-wage policy, which will be discussed again in the near future, should ensure more proportional increases in line with the inflationary rate.
During the first half of this year, the annual inflation rate had increased from 1.87 percent in December 2021 to 4.35 percent in June 2022. Although it is still relatively small compared to the inflation rates in other countries, the increase in prices of various basic needs has eroded the buying power of the people, especially those who live on fixed incomes. This is because the average increase in the national minimum wage in 2022 has only been 1.09 percent, below the inflation that continues to increase and is predicted to amount to 5 percent by the end of this year.
The current minimum wage is based on a new formula in Government Regulation (PP) Number 36 of 2021 concerning wages, which restrains the rate of minimum-wage increases to be more moderate or not too high.
The research director of the Center of Reform on Economics (CORE) Indonesia, Piter Abdullah, said on Tuesday (19/7/2022) that given the current condition, the minimum-wage policy in 2023, which will be discussed in the near future, should be adjusted to the inflation rate so that the increase in prices of various basic needs would not erode the buying power of the people.
According to him, it is now possible to increase the minimum wage in line with inflation because the recovery of the country’s economy continues to show a positive trend. "It is believed that Indonesia will not fall into a recession. With the assumption that our economic recovery continues, the minimum wage should be increased, at least in line with the increase in the inflation rate in 2022, which is around 5 percent," said Piter.
Based on a rough simulation using the latest macro indicators, if the minimum wage is based on the formula stated in Government Regulation No 36/2021, the wage increase will be only in the range of 1-3 percent. It means that increase in workers' wages will still be eroded by increasing inflation.
With the assumption that our economic recovery continues, the minimum wage should be increased, at least in line with the increase in the inflation rate in 2022, which is around 5 percent.
In Jakarta, for example, assuming economic growth of 4.63 percent and an inflation rate of 2.88 percent, the minimum wage for the current year of Rp 4.57 million, the average household consumption of Rp 2.33 million, the average number of people of 4.3 people per house and the average number of workers of 1.8 people per house, the percentage increase in the minimum wage is 1.67 percent, still below the inflation rate.
The vice chairman of the National Wage Council (Depenas), Surnadi, said that the wage increase of only 1.09 percent in 2022 was the worst in the history in Indonesia. He hoped that although the wage formula stated in the Regulation No. 36/2021 would be still used, the discussion of the 2023 minimum wage, which would begin next month, could produce a breakthrough according to the current needs.
KOMPAS/AGUS SUSANTO
A Trader prepare vegetables to be sold late into the morning at Cakung Market, East Jakarta, Monday (11/7/2022). The upward trend in inflation will further erode the people's buying power, given the small increase in the minimum wage.
This includes, among others, giving local governments the authority to adjust the rate of minimum-wage increases according to inflation in their respective regions. Another breakthrough would be to re-implement market surveys according to the components of decent living needs (KHL), which Law Number 11 of 2020 concerning Job Creation abolished.
"The result of a market survey could be the most appropriate indicator, so that wage increase will remain in accordance with regulations, but can be adjusted to the needs of the people," said Surnadi, who represents labor at the National Wage Council.
Don't just look at macro data, but also look at the micro-industry condition.
An economist at the Institute for Development of Economics and Finance, Abdul Manap Pulungan, said that in the midst of difficult conditions for both workers and employers, the minimum-wage policy should be adjusted to the condition of each business sector.
“Don't just look at macro data, but also look at the micro-industry condition. For sectors with high growth, the wage increase may be greater, but for the sunset industry, the same increase cannot be applied," he said.
The SMERU Research Institute's Senior Researcher, Luhur Bima, said in the midst of the trend of increasing prices of most basic commodities, government intervention was needed to strengthen people's buying power, especially the middle-lower-economic group.
Integrated
A minimum-wage policy that is proportional to the real needs of workers and the increase in the inflation is needed, considering the current economy is not normal. However, he warned, wage increase is not be the only solution needed.
"The effect of a proportional wage increase in coping with inflation may not be optimal if it is not implemented in an integrated manner with other policies," said Bima.
For example, it is necessary to improve the public transportation system to help reduce the impact of increasing fuel prices on public spending, as well as to improve the logistics-distribution system to minimize the impact of increasing prices for basic necessities on the market. In addition, the government also needs to pay attention to informal workers who cannot be helped through wage-policy instruments that are only intended for formal workers.
"The government still needs to focus on aid programs at the household level and improve their effectiveness, including the classic problem of accuracy of beneficiary lists," he said.
It's proportional
The vice chairman of the Indonesian Chamber of Commerce and Industry (Kadin) Adi Mahfudz believed that the new formula stated in Regulation No 36/2021 could still ensure a proportional increase in the minimum wage. It is possible because the minimum wage is intended only for workers with 0-1 years of services. "Meanwhile, to maintain people's buying power, the increase in wages for workers with a tenure of more than one year can be negotiated internally in accordance with the existing law," he said.
According to him, it would be more effective if the government intensified cash transfer assistance (BLT) programs to the community to maintain the people’s buying power such as through the Family Hope Program (PKH), Basic Food Cards, Cooking Oil BLT, Village BLT, Cash Assistance for Street Vendors, for fishermen, as well as Pre-Employment Card.
This article was translated by Hendarsyah Tarmizi.
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