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Factoring election into minimum wage decision

Jakarta Post Editorial - October 16, 2023

Jakarta – Labor unions have demanded a 15-percent minimum wage increase for next year, citing the country's strong economic growth and a recent rise civil servant salaries and pension payments.

We can agree that both conditions make a strong case for significant salary hikes for 2024. The economy grew 5.17 percent in the second quarter of this year and is expected to continue growth at 5 percent or above until year-end.

President Joko "Jokowi" Widodo has announced that salaries for civil servants and pensioners will increase next year by 8 percent and 12 percent, respectively.

But we should consider the fact that Indonesia will hold legislative and presidential elections on Feb. 14 next year, as well as concurrent regional elections, for the first time, on Nov. 27.

An amendment to Law No. 10/2016 on Regional Elections has mandated that all regional elections be held simultaneously in November 2024, meaning that some regional heads elected after 2019 will not serve the full five-year term.

The complexity of holding multiple elections will pose risks to the country's social and political stability, which in turn may compromise economic performance. These risks must be considered by the National Wage Council and the government to determine an appropriate minimum wage for next year.

Granting a 15-percent wage increase, double last year's nationwide average hike of 7.5 percent, would calm workers during the election year and protect their purchasing power. However, it may burden the economy and lead to a slowdown amid policy delays that the government is likely to implement because of the elections. These uncertainties provide good reasons to give a conservative outlook on the ongoing wage calculation.

It would be unfair to use the civil servant salary increase as a pretext to demand a minimum wage hike since the government decided to raise the wage of civil servants, military personnel and pensioners after a four-year moratorium. Meanwhile, the private-sector minimum wage has increased every year.

The Manpower Ministry issued last year Manpower Minister Regulation (Permenaker) No. 18/2022 to decide on a minimum wage formula that considers inflation and economic growth amid a void in regulation caused by a legal challenge to the Job Creation Law. The demand for a higher increase than initially expected angered employer associations but has been maintained throughout the year.

As the Constitutional Court has ruled to uphold the jobs law, it may be best to return to the wage formula stipulated in the law. The law's wage formula, which has been elaborated in Government Regulation (PP) No. 36/2021, uses gross domestic product (GDP), inflation, purchasing power, labor absorption rate and wage median as the main indicators. Sticking to the existing regulations will help maintain stability and mitigate political risks posed by the elections.

We also denounce the demand of some employers to create a new wage formula to address wage disparity across regions. While it is true that the current formula may produce a wage gap across provinces, regencies and cities, it may also reflect the varying economic conditions and inflation rates in the regions.

It will be best to avoid disagreements during the minimum wage negotiations so that the ministry and the wage council can decide on the 2024 nationwide minimum wage median in November as scheduled.

This will prompt the provincial administrations to immediately start local consultations to set the new minimum wages for regencies and cities and send a strong signal of stability across the country.

Source: https://www.thejakartapost.com/opinion/2023/10/16/factoring-election-into-minimum-wage-decision.htm