By: Bara Winatha)
The government has reaffirmed its commitment to maintaining a balance between protecting workers’ purchasing power and ensuring business sustainability through the establishment of a new Provincial Minimum Wage (UMP) increase formula for 2026. This commitment was realized with the signing of the Government Regulation (PP) on Wages by President Prabowo Subianto. The regulation marks an important milestone in national labor policy, as it introduces a formula that is more adaptive to regional economic conditions while also responding to the Constitutional Court’s ruling on fair wage determination.
Minister of Manpower Yassierli stated that the Wage Regulation was formulated through an extensive process of studies and discussions, taking into account national economic dynamics, labor market conditions, and the aspirations of various stakeholders. He explained that the new formula used to determine the 2026 UMP is based on inflation plus the product of economic growth and an alpha factor. The alpha coefficient ranges from 0.5 to 0.9, significantly higher than the previous range of 0.1 to 0.3. This adjustment is intended to make wage increases more responsive to economic realities and the cost of living needs of workers across different regions.
The government believes that wage policy cannot be rigidly standardized, as economic conditions, industrial structures, and the prices of basic necessities vary from one region to another. With the new formula, the determination of the UMP is no longer a one-size-fits-all approach, but is instead tailored to the characteristics and economic capacity of each region. Accordingly, Regional Wage Councils are given a strategic role in calculating and recommending the amount of UMP increases to governors based on the formula stipulated in the Wage Regulation.
The regulation also emphasizes the obligation of governors in all provinces to set the UMP no later than December 24, 2025, so that it can take effect on January 1, 2026. In addition to the UMP, regional heads are required to determine the Provincial Sectoral Minimum Wage (UMSP) and are granted the authority to establish the Regency/Municipal Sectoral Minimum Wage (UMSK). This step is considered important to provide additional protection for workers in specific sectors that have distinct work characteristics and risk levels.
This policy is aimed not only at improving workers’ welfare, but also at maintaining a conducive business climate. The government recognizes that businesses require regulatory certainty in order to plan production activities and investments on a sustainable basis. With a transparent formula based on measurable economic indicators, business actors are expected to be able to anticipate wage increases and adjust their business planning accordingly, without compromising workers’ welfare.
Chairman of the South Kalimantan chapter of the Indonesian Employers Association (Apindo), Winardi Sethiono, stated that the issuance of the Wage Regulation provides legal certainty for businesses in preparing for the determination of the 2026 UMP. He explained that with this regulation in place, calculations for UMP increases at the regional level can immediately begin in accordance with the mandate of the regulation. In his view, the new wage policy should serve as a guideline for Regional Wage Councils so that the resulting decisions truly represent the best possible option for both workers and employers.
From the labor union perspective, the policy has also received appreciation. Chair of the Jambi Provincial Coordinating Board of the Confederation of Indonesian Workers’ Unions (KSBSI), Roida Pane, said that the signing of the Wage Regulation demonstrates the government’s seriousness in following up on the Constitutional Court’s ruling, which emphasized the importance of wage determination based on decent living needs. Since decent living needs vary from region to region, setting the UMP in accordance with local conditions is considered an appropriate and commendable step.
The government further emphasized that the Wage Regulation is part of a long-term effort to improve the national labor system. As is well known, the Constitutional Court has instructed the government and the House of Representatives to draft a new labor law separate from Law Number 6 of 2023 on Job Creation. In its ruling, the Court stressed the importance of actively involving labor unions and workers in the legislative process to ensure that the resulting policies are fair and balanced.
In this context, the Wage Regulation is viewed as a strategic transitional measure. The government seeks to ensure that during the process of drafting the new labor law, workers’ protection remains intact while businesses continue to enjoy regulatory certainty. The more adaptive UMP increase formula is expected to serve as an instrument for maintaining social and economic stability amid ongoing global challenges.
Through the 2026 Wage Regulation, the government aims to build public understanding that wage policy should be seen as part of a broader economic ecosystem. The involvement of Regional Wage Councils, social dialogue between employers and workers, and oversight by regional governments are key to ensuring effective policy implementation. Transparency in calculations and clear communication among stakeholders are also considered essential to preventing misunderstandings and industrial disputes.
Thus, the reaffirmation of the latest UMP increase formula not only reflects the government’s support for workers, but also demonstrates serious attention to business sustainability. This policy is expected to serve as a foundation for more equitable, productive, and sustainable industrial relations, while strengthening national economic resilience in the face of future challenges.
*) The author is a social and community affairs observer.