Indonesia continues to record high inflation rates for the first time in a long time due to soaring fuel prices, and the Indonesian government has recently raised the price of subsidized fuel. There has been strong opposition from students and labor unions, and demonstrations are occurring frequently, but it seems inevitable that the inflation rate will rise further. There are many media outlets that link this to the 1998 currency crisis, but how will this affect the minimum wage in 2023?

[Calculation method using omnibus method]

1997Due to the currency crisis that began in 2017, inflation increased in Indonesia, and at one point the annual inflation rate exceeded 60%. The minimum wage at that time was not actually revised. Of course, there was great pressure on the lives of workers, but at the time it was more important to avoid company bankruptcy and maintain the economy by raising the minimum wage. Although the Indonesian government is always said to be "pro-worker," there are actually many cases where it makes decisions that are not the case. The same applies to this omnibus method. It has been talked about many times that the formula for calculating the minimum wage stipulated in the omnibus law is not being followed, but what will happen in 2023? The numerical elements used in the formula are GDP or inflation rate, average consumption per person, average number of family members, and average number of employees per family. I think the key points will be how much the inflation rate and average consumption per person rise.

[How far do workers' demands go?]

Meanwhile, a federation of labor unions is currently demanding a 10-13% increase in the minimum wage next year. On the other hand, Bank Indonesia's target is 3% ± 1%, and some banks' forecasts are a little less than 4%. The subsidized fuel price increase may not have been expected, so there will be a little extra, but I don't think it will reach 10% inflation. Furthermore, Jakarta's minimum wage is calculated based on the highest candidate minimum wage for 2022, which is currently under appeal, making it a dream-like figure. However, demands from each company's labor union are influenced by these. In fact, in 2021, when the inflation rate was 1.87%, the real salary increase rate in many companies was around 3%. This is despite the fact that in many cities/provinces, the applicable minimum wage did not increase at all due to the elimination of sectoral wages and the omnibus formula. Therefore, it is inevitable that there will be stronger demands in 2023 than in 2022.

So what kind of measures should we take? The first step is to clearly define the company's stance. And be sure to share the data your company can openly share. You will also need to thoroughly explain the company's situation and guidelines. In the end, I believe that the best way to move the union is to continue to explain things steadily, without assuming that ``I don't understand even if I say this,'' and without assuming that ``if I disclose the data, it will be misused.''

Related regulations: Law No. 11 of 2020 UU-11/2020, Government Decree No. 36 of 2021 PP-36/2021