Review of the Regency/City Minimum Wage Determination Method In the Province of Bali

Background

               Determination of  Regency Minimum Wage (RMW) is carried out by the provincial and district government annually. The stipulation of RMW is intended by the government so that the wages received by workers can be sufficient for a decent living. If viewed from two sides, namely between the demand and supply side of labor, then the position of this RMW is different. From the demand side of labor, that is, employers view RMW as a cost which, if allowed to be reduced to the lowest level, whereas from the supply side of labor, those who offer labor in the labor market see this RMW as a very important wage standard in improving their welfare so that if possible RMW is expected to be as high as possible.

                    The government sets RMW in the hope that workers will get a decent wage to fulfill the life of the worker, in accordance with the 2003 Manpower Act in article 88 paragraph 1. The article states that every worker / laborer has the right to earn an income that fulfills a decent living for humanity. This article implicitly shows that MSEs must be renewed periodically because decent livelihoods are strongly affected by changes in the prices of goods or services. For this reason, the government periodically stipulates the RMW at the beginning of a certain year (January 1) established by the Governor, and the determination is no later than 40 days before the MSE becomes effective. These RMW are ideally applied or used as a reference by employers in setting wages in the company/institution they lead. However, employers are only in the position of accepting the size of the RMW, in this brief paper, a review of how to determine the RMW in each district / city is in accordance with the formula used by the district/city government.

Discussion

               The stipulation of RMW which is carried out by the regency / city government uses a formula that has been determined by the central government in this case by the president using the following formula:

Umn = Umt + UMt (% inflation +% GRDP growth)

Umn = Minimum wage to be set

Umt = Minimum wage for the current year
Inflation is calculated from the period of September last year to September of the current year. Percentage of GRDP growth: GRDP growth which includes growth in the third and fourth quarters of the previous year and KW I and II of the current year. Following is an example of the calculation of RMW in Klungkung Regency in 2020 as follows.

Umn = Rp. 2.338.840,407 + (Rp.2.338.840,407 x (3,39% + 5,12%)

Umn = Rp. 2.338.840, 407 + (Rp. 2.338.840, 407 x 8,51%)

Umn = Rp. 2.338.840,  + Rp. 199.035,32

Umn = Rp. 2.537.875,73 rounded up to Rp.2.538.000,- for the year  2020.

In the calculation of RMW above the percentage of the inflation rate and the percentage of economic growth/GRDP has been determined equally in all regencies/cities in Indonesia, including in the Province of Bali, namely an inflation rate of  3.39 percent and a GRDP growth rate of 5.12 percent, bringing the total the percentage of RMW increase in the year calculated compared to the base year increased by the same magnitude of  8.51 percent in all districts / cities in Indonesia. The methods of calculation like this that are unrealistic are used to calculate MSEs in all districts/cities in Indonesia for the following reasons.

1) Prices that apply to all/most types of goods/services in districts / cities in the Province of Bali are different, especially when seen in all districts / cities in Indonesia, amounting to more than 500 districts/cities.  The reality of the prices of goods for basic needs in Klungkung Regency is  cheaper than in Badung Regency or Denpasar City for example. So the RMW calculation that has been used is less/unreasonable, unrealistic and not in accordance with facts on the ground. In districts/cities where inflation is lower than the inflation rate used to calculate RMW, the prices of goods/services tend to be lower too, so workers' wages will be lower too. Thus the determination of the RMW size by using inflation rate data that is higher than the actual inflation in the regency/city can have an impact on the inability of the businesses in the regency/city concerned to pay wages of the stipulated RMW. The reality is that some employers are unable to pay the specified minimum wage. Workers also accept these conditions due to lack of available employment opportunities.

2) The rate of economic growth/GRDP used is also the same percentage, which is 5.12 percent. This is also less realistic because in reality there are some districts / cities that have higher or lower capabilities in increasing economic growth. Districts / cities that have lower economic growth rates will also be more difficult to be able to provide the minimum wage set, so it is likely that many employers are unable to pay the minimum wage as determined.

3) The ability in each sector to produce output is also very different, for example in the agriculture, industry and services sectors. Different capabilities in producing output / income also lead to the ability to apply UMK in these sectors.

               Seeing the various weaknesses in determining RMW in regencies / cities in Indonesia as well as in the Province of Bali, in the future the establishment of RMW should use the same approach or formula, but with the amount of inflation and economic growth that is different from one another, adjusted to the conditions of each district/city. Change the RMW scale by looking at the actual condition of the regency / city which can also be a homework (PR) that should be done in the future to improve the RMW scale, so that it becomes more realistic, and employers can apply it well. For example, an employer able to pay above the RMW would certainly be better than being able to pay half or less than the specified RMW amount. Payments under the RMW reflect an inappropriate RMW  determination.

D. Closing

               In order to produce realistic RMW values ​​in accordance with the very varied conditions of districts/cities in Indonesia, the magnitude of the inflation rate and economic growth rate used in the existing formula should be revised. The revised level of inflation and economic growth / GRDP used are adjusted to the conditions of each region, so as to produce a more realistic, and more reasonable RMW value according to regional conditions. If this is done, probability that employers will be able to pay an RMW or higher than the RMW will be increase.