Jakarta. Indonesia’s new minimum wage formula did not satisfy businesses or labor groups because, according to labor unions, it fails to reflect real economic conditions, while businesses say it creates additional pressures on companies

The revised regulation retains the existing framework for calculating provincial minimum wages, which ties annual increases to inflation and economic growth, but significantly raises a coefficient known as alpha. The coefficient, which determines how much economic expansion is passed on to workers, has been lifted to a range of 0.5 to 0.9 from 0.1 to 0.3 previously, giving regional wage councils greater room to recommend higher pay.

Shinta W. Kamdani, Chairwoman of the Indonesian Employers Association (Apindo), said the government’s alpha (α) coefficient range of 0.5–0.9 does not fully account for business realities.

“While businesses understand that wage policies are meant to protect workers and maintain purchasing power, these policies need to be implemented carefully and proportionally to align with company capacity and local labor conditions,” Shinta said Thursday.

Apindo proposed an alpha range of 0.1–0.5 to balance the cost of living with the financial capacity of businesses. They suggested applying 0.1–0.3 for regions where the minimum wage exceeds the cost of living and 0.3–0.5 for regions below it, to prevent widening disparities between provinces.

Bob Azam, Head of Apindo’s Labor Division, said minimum wages should function as a safety net, allowing companies with limited resources to operate sustainably while retaining employees.

“Businesses are not opposed to wage increases. If a company wants higher wages, it should do so through a bipartite mechanism that considers productivity and business conditions,” Bob said.

He also pointed to Indonesia’s high Kaitz Index — the ratio of minimum wage to average or median wages — which he said could restrict formal job creation and push workers into the informal sector. Wage policies, he argued, should strengthen businesses’ ability to create quality formal employment.

Subchan Gatot, Deputy Chair of Kadin’s Labor Committee, shares these concerns, warning that minimum wage hikes that outpace labor productivity could create structural pressures. In the past five years, labor productivity grew only 1.5%–2% annually, while provincial minimum wages increased 6.5%–10% per year.

Jakarta offers an early indication of how the policy may play out. With the capital’s current minimum wage at about Rp 5.4 million ($323) a month, the new formula would lift Jakarta’s 2026 minimum wage to roughly Rp 5.68 million to Rp 5.77 million.

Labor unions, however, say the planned increases still fall short. Said Iqbal, president of the Confederation of Indonesian Trade Unions, argued the formula fails to reflect the real cost of living. Monthly living expenses in Jakarta can reach around Rp 15 million, covering housing, food, transport, education, and healthcare.

“It is unrealistic to claim that people can live decently in Jakarta on a salary of around Rp 5 million a month,” Iqbal said.

In response, workers from Banten, Jakarta, and West Java plan to stage a demonstration outside the Presidential Palace in Jakarta on Friday to protest the minimum wage policy.