Finding the Root of the Problem, Why Indonesia is the Country with the Lowest Minimum Wage in the World and Its Solution
By: Sujaya, S. Pd. Gr.
( Advisory Board of DPP ASWIN)
According to the latest report data from Velocity Global released in December 2024, Indonesia is one of the 10 countries with the lowest minimum wages in the world. In the report, Indonesia is ranked 10th above Vietnam, Ukraine, the Philippines, Kazakhstan, Armenia, Pakistan, Uzbekistan, Nigeria and India.
Indonesia’s monthly minimum wage varies by province, ranging from US$133 to US$331 or Rp2,164,575 in Central Java to Rp5,387,025 in DKI Jakarta.
This is of course very concerning amidst #kaburajadulu and the rampant layoffs due to the closure of several large companies in the country.
According to Analysis, several main factors that influence the lowest minimum wage in Indonesia are as follows:
1. Relatively Low Cost of Living
The minimum wage is usually adjusted to the cost of living in a country. Compared to developed countries, the cost of living in Indonesia is lower, so the minimum wage is also lower.
2. Labor Productivity
Wages usually reflect worker productivity. If labor productivity in Indonesia is still lower than in developed countries, then wages also tend to be low.
3. Government Regulation and Policy
The Indonesian government sets the minimum wage based on a certain formula, including inflation and economic growth. However, in practice, this policy can be influenced by pressure from employers and global economic conditions.
4. Availability of Labor
Indonesia has a large workforce population, so competition for jobs is high. This can cause companies to reduce wages because there are many workers willing to work for low wages.
5. Dominance of the Informal Sector
Most of the workforce in Indonesia still works in the informal sector, where minimum wage protection is not always applied.
*What is the Solution?*
To increase the minimum wage in Indonesia and get out of the list of countries with the lowest wages, some solutions that can be implemented are:
1. Increase Labor Productivity
Invest in vocational education and training so that workers have higher skills.
Encourage the adoption of technology and innovation in the industrial sector to increase productivity.
2. Increase Investment and Value-Added Industry
Encourage investment in advanced manufacturing, technology, and digital industries.
Reduce dependence on cheap labor-based sectors.
3. Minimum Wage Policy Reform
Adjust the minimum wage determination formula to international standards.
Encourage dialogue between the government, employers, and trade unions for a fair wage balance.
4. Reduce Regional Inequality
Increase development outside Java so that wage standards are more evenly distributed.
Provide incentives for companies that open jobs in disadvantaged areas.
5. Increase Worker Protection and Welfare
Strengthen employment regulations so that more workers receive a living wage.
Encourage company compliance in providing wages according to regulations.
If these steps are implemented consistently, Indonesia can increase the minimum wage gradually and get out of the list of countries with the lowest wages in the world.
Indramayu. 3/13/2025
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