Jakarta. Indonesia’s minimum wage is set to rise by about 5% to 7% next year under a new wage-setting framework signed into law by President Prabowo Subianto, opening the way for higher provincial minimum wages (UMP) in 2026.

Manpower Minister Yassierli said the new government regulation was signed on Tuesday after months of studies and consultations, including with labor unions. 

Under the new scheme, minimum wage adjustments will be calculated using a formula that combines inflation and economic growth: inflation plus economic growth multiplied by a coefficient known as alpha. Alpha determines how much of economic growth is passed on to wages. The value of alpha will be set by provincial or district wage councils, taking into account factors such as labor absorption and average wage levels.

“The calculation of the minimum wage increase will be carried out by the Regional Wage Council and submitted as a recommendation to the governor,” Yassierli said at a press conference on Wednesday.

The regulation sets alpha in a range of 0.5 to 0.9, up from 0.1 to 0.3 under the previous framework. A higher alpha results in a larger wage increase, giving regional authorities greater flexibility to balance worker welfare with business conditions.

Regional wage councils will calculate the proposed increases and submit their recommendations to provincial governors, who have the authority to set the final minimum wage levels.

Chief Economic Affairs Minister Airlangga Hartarto said economic growth would be a key variable in determining the 2026 minimum wage, with the calculation based on third-quarter 2025 data, as wage decisions must be finalized before the end of the year.

“The minimum wage depends on economic growth in the third quarter of 2025,” Airlangga said in late November.

While final outcomes will vary by province, Jakarta illustrates how the new framework could work in practice. With the capital’s current minimum wage at about Rp 5.4 million ($323) per month, inflation at 2.4%, and economic growth at 4.96%, the formula implies an increase of roughly 5% to 7%. That would lift Jakarta’s 2026 minimum wage to an estimated Rp 5.68\6 million to Rp 5.77 million per month.