- Minimum wages across ASEAN countries are gradually increasing to match the rise in the cost of living.
- Despite the increases, minimum wage rates in ASEAN remain among the lowest in Asia.
- Foreign investors should seek the help of registered local advisors to help understand how these latest changes will affect their business operations.
Minimum wage rates across ASEAN countries are rising gradually to match the region's increased cost of living and boost domestic demand. To combat inflation and prevent any outbreaks of labor unrest, ASEAN countries have increasingly been pushing for higher minimum wage levels and enacting new labor laws to protect workers' rights.
Despite rising salaries, minimum wages in the majority of ASEAN countries remain significantly lower than those in the developed economies of the world. Businesses must take note that the minimum wages in most countries vary regionally and as per the industry and job specifications. They may also be subject to periodic – national as well as local – regulatory changes.
Given that the minimum wage for each country is different, foreign investors should seek the help of registered local advisors to help understand how changes to the wage rate and related compliances will affect the scope of their business and operations on the ground.
Indonesia's labor market contains significant regional variation because monthly wages are fixed at the provincial level by governors through the wage councils and district wage councils throughout the archipelago's 34 provinces.
The country utilizes a unique formula to calculate the annual percentage increase of the minimum wage. The formula is as follows:
National inflation + National economic growth = Percentage increase of minimum wage
On October 15, 2019, the Minister of labor issued circular B-M 308, 2019, which authorizes provincial governors to increase their provinces' minimum wage by 8.51 percent for 2020.
The province of Jakarta continues to have the highest minimum wage at 4,200,000 rupiah (US$298) whereas Central Java province has the lowest at 1,742,00 rupiah (US$123).
In addition to the provincial minimum wages, there is also a minimum wage rate for 'leading industries or sectors'. Under the Minister of Labor Regulation 7 of 2013, certain industries can determine their own minimum wage rate, known as the UMSP, if they fulfill the following criteria:
- The specific industry encompasses a large number of local businesses;
- The industry requires significant manpower;
- The industry can generate added-value to the economy; and
- The industry is export-oriented.
Despite the annual increases in the minimum wage, Indonesia continues to endure low worker productivity, as less than half of the country's workforce is classified as 'skilled'. This has resulted in the slow advancement of sectors vital to economic development, such as manufacturing and agriculture.
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