Old Formula
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In Government Regulation No. 78/2015 on Wages, the increase of minimum wage based on Decent Living Needs (KHL) and taking into account productivity and economic growth with the formula:
UMn = UMt + {UMt x (Inflation + % ∆ PDBt)}
UMn: The Minimum Wage will be set.
UMt: The current year's Minimum Wage
Inflation: Inflation calculated from inflation's September last year to September current year
% ∆ PDBt: The growth of gross domestic product calculated from the growth of gross domestic product that covering the period third and fourth quarters of last year and first and second quarters of current year.
Notes of the Minister of Manpower No. 21/2016 concerning Decent Living Needs:
1. Decent Living Needs review is carried out every 5 (five) years through the stages of review and determination of the results of the review of components and types of living needs. There are 7 Decent Living Needs components that cover 60 types of needs, namely:
1) Food and drink 2) Clothing 3) Housing 4) Education 5) Health 6) Transportation and 7) Recreation and savings. This Decent Living Needs review value is used as the basis for calculating the first year minimum wage in a 5 year period.
2. The adjustment of the Decent Living Needs value in determining the minimum wage every year is directly corrected by multiplying the current year's minimum wage with the current year's national inflation rate.
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For example, this year Province A applies Minimum wage of workers/labor IDR 4,2 million/month with inflation 3 percent and the economic growth (% ∆ PDBt) 5 percent. The minimum wage for next year is IDR 4,536 million/month
From IDR 4,2 million plus an increase IDR 336,000. The increase wage comes from 3 percent of inflation plus 5 percent of the growth economic and multiple by the current year's wage IDR 4,2 million
UMt = IDR 4,2 Million
Inflation (current year assumption) = 3%
% ∆ PDBt (assumption) = 5%
UMn = 4,2 million + {4,2 million x (3%+5%)}
UMn = 4,2 million + {4,2 million x 8%)}
UMn = IDR 4,2 million + 336 thousand
So, the result of UMn are IDR 4,536 Million
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New Formula
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In Government Regulation No. 36/2021 on Wages, the determination Minimum Wage based on economy and employment conditions by taking into account upper and lower limits of the minimum wage.
The formula are:
Upper limit formula:
Upper Limit UM(t) =
(Average per capita consumption(t) x Average number of households(t)) / Average number of households work in each household
Lower limit formula:
Lower limit UM(t)= Upper limit UM(t)x 50%
Minimum Wage formula to be determined, as follow:
UM(t+1)= UM(t) + {Max (PE(t),(Inflation(t)) x [(Upper limit(t) - UM (t)) / (Upper limit(t) - Lower limit(t))] x UM(t)}
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Average per capita consumption in a province = IDR 2,5 Million
Average number of household = 4 person
Average number of households who works - in each every household = 1
Then the determination of upper limit:
Upper limit UM(t) = (IDR 2,5 Million x 4 person) / 1
UM(t) = IDR 10 Million
And the determination of lower limit:
Lower limit UM(t) = IDR 10 Million x 50%
Lower limit UM(t) = IDR 5 Million
So, Minimum Wage determine:
- Assuming, economic growth as 5% and 3% of provincial inflation, then the maximum number is chosen, which means using 5% of economic growth
- The current minimum wage assumption is IDR 4.2 million
- The upper limit is IDR 10 million
- The lower limit is IDR 5 million
So, the calculation is:
UM(t+1)= IDR 4,2 Million + {5% x ([IDR 10 Million - IDR 4 Million] / [IDR 10 Million - IDR 5 Million]) x IDR 4,2 Million}
UM(t+1)= IDR 4,2 Million + (5%xIDR 1,16xIDR 4,2 Million)
UM(t+1)= IDR 4,2 Million + IDR 243.600
UM(t+1)= IDR 4.443.600
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