Indonesia’s economy continues to grow, albeit at a modest pace. Unfortunately, behind this achievement, more than half of workers still earn wages below the minimum standard. Data from Statistics Indonesia (BPS) show that around 53 percent of workers in Indonesia received wages below the provincial minimum wage (UMP) in early 2025. The persistence of sub-minimum wages amid economic growth reflects a paradox in the country’s labor market.
Dr. Qisha Quarina, a lecturer at the Faculty of Economics and Business, Universitas Gadjah Mada (FEB UGM), acknowledged this phenomenon. Despite positive economic growth, the data indicate an increase in the number of workers paid below the regional minimum wage. She considers this condition relatively common given Indonesia’s labor structure, which remains dominated by the informal sector.
“Ideally, all workers should receive decent wages. However, in practice, minimum wage regulations cannot be imposed on informal workers. These rules are not legally binding for them, leaving informal workers unprotected,” Dr. Quarina said at FEB UGM on Wednesday (Feb. 4).
The labor observer and researcher further explained that most informal workers lack permanent employment relationships. Many of them work on a freelance basis with frequently changing employers.
This situation makes it difficult to include them in minimum wage protection schemes. Meanwhile, Indonesia’s business landscape is dominated by micro, small, and medium-sized enterprises (MSMEs), which are granted regulatory exemptions from minimum wage policies.
“Approximately 58–59 percent of Indonesian workers are informal. On the employer side, more than 90 percent of businesses are MSMEs. This makes the enforcement of minimum wage policies impossible for informal workers,” she explained.
Dr. Quarina noted that wage practices below the minimum standard could pose serious problems in the medium to long term. At the micro level, informal workers with low wages generally lack employment protection, including protection against old age and pension coverage.
According to her, MSMEs and informal workers are likely to continue to dominate Indonesia’s labor market in the short term. In the long run, however, demographic shifts toward an aging workforce could create new challenges. Even if workers earn relatively adequate wages during their productive years, they will eventually face a critical issue when they are no longer able to work.
“The big question is, when they stop working, who will support the livelihoods of this group?” she said.
At the macro level, Dr. Quarina added, this condition could increase the state’s fiscal burden if a large proportion of workers become dependent on social assistance. In response, she argued that Indonesia’s labor policies need to move beyond debates over minimum wages toward an agenda focused on creating decent work.
While fair wages are important, they should ideally be accompanied by safe working conditions and adequate employment protection.
“Policy priorities must cover wages, working conditions, and social security protection. With demographic changes leading toward an aging workforce, long-term protection schemes have become extremely urgent,” she emphasized.
Reporter: FEB UGM/Kurnia Ekaptiningrum
Author: Agung Nugroho
Post-editor: Jasmine Ferdian
Photographs: Antara and FEB UGM