KUALA LUMPUR - Indonesia’s employers and labor unions have both criticised the government’s newly introduced formula for setting minimum wages in 2026, saying it either burdens businesses or falls short of workers’ living needs.

President Prabowo Subianto on Tuesday signed a regulation that sets a wage formula based on inflation, economic growth and an alpha coefficient reflecting labor’s contribution.

The Jakarta Post reports, under the regulation, provincial leaders must decide the wage increase by December 24, using an alpha range of between 0.5 and 0.9.

Based on the formula, minimum wages are expected to rise between 5.3% and 7.3% next year, a level employers say is too high given weak productivity growth.

The Deputy Head of Labor Affairs at the Indonesian Employers Association (Apindo), Subchan Gatot said that the proposed wage increase is too high compared with productivity levels and will put a heavy burden on businesses.

“This level of increase is too high relative to productivity levels and will weigh heavily on businesses.

“Companies do not oppose wage increases, but when wages rise far above productivity, the difference will be absorbed in higher prices, which is counterproductive when purchasing power is already weak,” he emphasized.

Apindo Chairwoman, Shinta Kamdani said the formula does not reflect uneven performance across industries, with several sectors still struggling.

Industry data showed weak or negative growth in sectors such as textiles, footwear, furniture, rubber, plastics and automotive manufacturing in 2025.

Apindo Manufacturing Head, Adhi Lukman said labor-intensive industries are highly sensitive to wage hikes due to weak demand, high costs and global trade uncertainty.

Labor unions, meanwhile, said the formula fails to adequately address rising living costs for workers.

President of Confederation of Indonesian Trade Unions (KSPI) issued a strong warning to governors not to revise downward the minimum wage hike recommendations from mayors and regents.

“This is a strong warning to governors not to revise downward the minimum wage hike recommendations from mayors and regents.

“Below that level, workers’ wages will not be able to keep up with rising living costs,” Iqbal said.

KSPI also questioned the new regulation, warning it could weaken wage protection by changing the benchmark for decent living standards.

“The government appears to be unilaterally creating a new version. That is dangerous, because the benchmark is the foundation of wage policy,” Said noted.

In addition, Indonesian Workers Union Association President, Mirah Sumirat said the formula does not guarantee workers’ basic living needs.

“We are disappointed that the formula neither reflects nor ensures decent living needs for workers and their families,” she said.