Minimum Wage Hikes Fail to Ease Middle-Class Squeeze

The 2026 minimum wage increase has not fully managed to keep pace with the pressures of living costs, interest rates, and household expenses. Amidst these conditions, Indonesia's middle class continues to shrink, and economic strain is being felt not only by formal workers but also by those in the digital informal sector.

JAKARTA, JurnalPost.com — Annual minimum wage increases always bring new hope to workers. When nominal salaries rise, it is expected that public purchasing power will strengthen, allowing household needs to be met more effectively.

However, nine months into the implementation of the 2026 Provincial Minimum Wage (UMP), this income growth is facing other equally significant challenges. The prices of basic necessities, credit installments, housing costs, transportation, and daily expenses remain a burden for many households.

Consequently, a higher figure on a pay slip does not necessarily mean a family's financial situation has become more comfortable. This situation is increasingly felt by the middle class, which has long been a primary pillar of Indonesia's domestic consumption.

Minimum Wages Rise, but Purchasing Power Remains a Problem

The 2026 UMP varies by region to adjust to the economic conditions and wage structures of each area.

In DKI Jakarta, the 2026 UMP is recorded at Rp5,729,876. Meanwhile, the Riau Islands are at approximately Rp3,879,520, Central Java at Rp2,327,386, and West Java at Rp2,317,601.

This policy continues the trend of minimum wage increases, which saw a national average rise of 6.5 percent in 2025.

The government previously viewed minimum wage increases as an instrument to maintain public consumption capacity, particularly for workers and the middle class.

The problem is that nominal wage increases do not always keep pace with rising household expenditures.

Workers, for instance, are still debating whether the established wage levels truly align with the actual cost of living in their respective regions.

The Confederation of Indonesian Trade Unions, along with the Labor Party, previously pushed for the 2026 Jakarta UMP to be in the range of Rp5.89 million, or equivalent to 100 percent of the Decent Living Needs (KHL) standard.

This debate highlights two perspectives on wage setting. Percentage-based increases are relatively easy to implement administratively but do not necessarily reflect the differences in the cost of living between regions.

Meanwhile, the KHL-based approach considers the actual needs of the community, such as food, housing, transportation, and other basic necessities based on local price conditions.

Nearly 10 Million People Have Left the Middle Class

The pressure on purchasing power can also be seen in the shift in the number of Indonesia's middle-class population over the last few years.

In 2019, the number of people categorized as middle class was recorded at approximately 57.33 million. This figure then dropped to 47.85 million in 2024.

This means that approximately 9.48 million people left the middle-class group in just five years.

In 2025, that number decreased further to approximately 46.7 million people.

A Snapshot of Indonesia's Middle-Class Data

The shrinking of the middle class is a concern because this group plays a vital role in maintaining national consumption.

When more households fall into more vulnerable economic groups, spending patterns typically change. People tend to hold back on spending, delay purchases of high-value items, reduce leisure activities, and prioritize only the most urgent needs.

Economist at the Center of Reform on Economics (CORE) Indonesia, Yusuf Rendy Manilet, views this issue not merely as a typical economic slowdown, but as related to the declining resilience of the group that has long supported national consumption.

The pressure of living costs, income uncertainty, and economic conditions make some middle-class households increasingly vulnerable to a decline in their standard of living.

Snapshot of 2026 UMP in Several Provinces

The difference in minimum wages between regions is also quite wide.

2026 UMP in Four Provinces

These figures show that labor market conditions and the cost of living do indeed differ in every region.

However, for workers, the nominal salary is only one part of the problem. What is equally important is how much of that income remains after being used to meet daily living needs.

Installments and Credit Interest Add to Household Burdens

The pressure on the middle class does not only come from the prices of goods and daily necessities. Credit burdens also take up a significant portion of many families' income.

In June 2026, Bank Indonesia raised the benchmark interest rate to 5.50 percent as part of efforts to maintain the stability of the rupiah, which had weakened to around Rp18,190 per US dollar.

From the perspective of macroeconomic stability, this policy has a specific purpose. However, for some households, changes in interest rates can affect credit costs.

Families with home mortgages (KPR), vehicle loans, credit cards, or consumer loans need to allocate a portion of their income to pay installments.

When installments take up an increasingly large portion, the room for consumption automatically becomes narrower.

People then become more selective in their spending. Secondary purchases are delayed, travel is reduced, and a portion of income that could previously be used for recreation or savings is diverted to pay for mandatory needs.

Eid Consumption Increases, but Not Evenly

A similar situation is seen in consumption patterns leading up to Eid 2026.

Public spending activity has indeed increased, but the recovery is not evenly distributed across all income groups.

The upper-middle class tends to have stronger consumption capacity, while the lower-middle class still faces pressure on their income.

Executive Director of CORE Indonesia, Mohammad Faisal, previously explained that the aggregate retail sales index still shows positive growth. However, this increase does not fully reflect the condition of all community groups.

This shows the limitations of reading consumption health only through aggregate figures.

When high-income earners increase their spending, total sales may still appear strong even though lower-income groups are actually reducing their spending.

Therefore, consumption trends should ideally be viewed based on income groups, regions, and types of expenditure.

Ojol Drivers Face Different Pressures

Purchasing power pressure is not only felt by workers with formal wage systems.

Online motorcycle taxi (ojol) drivers face a slightly different problem because their income depends on the number of orders, trip fares, operational costs, and working hours.

They do not directly enjoy UMP increases like formal workers.

When public purchasing power weakens, consumers usually start reducing spending on services considered deferrable. The frequency of using ride-hailing, food delivery, or other services may decrease.

This condition has the potential to affect the income of drivers and MSME merchants who depend on the digital service ecosystem.

During certain moments, such as approaching Eid, demand may indeed increase. However, drivers must still deal with fuel costs, vehicle maintenance, motorcycle installments, and household needs.

In other words, gross income that looks quite large does not necessarily reflect the net income received by the driver.

If operational costs and daily needs increase faster than income, workers in the digital informal sector also face a decline in their ability to purchase goods and services.

Shrinking Middle Class Could Have Long-Term Impacts

The shrinking of the middle class is not just a household-level problem.

In the long term, this condition can affect the structure of economic growth because household consumption is a crucial component of the Indonesian economy.

The fewer households that have stable income and adequate room for consumption, the weaker the domestic economy's ability to rely on public spending becomes.

At the family level, prolonged economic pressure can make it difficult for people to save, buy homes or vehicles, pursue education, or improve their quality of life.

Meanwhile, in industrial relations, the gap between the wages set by the government and the living needs perceived by workers has the potential to remain a point of contention during every minimum wage setting period.

Minimum Wage and the Labor Market Are Not Simply About Up or Down

The relationship between the minimum wage and labor market conditions cannot be viewed in black-and-white terms.

A number of economic studies show that wage increases can boost worker income and encourage purchasing power. However, under certain conditions, especially when businesses are under pressure, increased labor costs can also affect a company's decision to hire employees.

The impact also depends heavily on worker productivity, industry conditions, labor market strength, and a company's ability to adjust its cost structure.

The efficiency wage concept even suggests that providing better wages and working conditions in certain situations can increase worker productivity, reduce employee turnover, and provide benefits to the company.

Therefore, discussions on the minimum wage should not focus solely on the percentage of the increase. Productivity, job creation, price stability, and the public's cost of living also need to be part of the discussion.

Protecting the Middle Class from Continued Pressure

The issue of purchasing power requires broader policies than just raising the minimum wage.

Targeted fiscal support for the lower-middle class could be an option to maintain consumption. The stability of food prices and basic necessities also plays an important role because these components absorb a large portion of household spending.

In addition, exchange rate stability and a healthy credit system are needed so that installment costs do not become an excessive burden.

The government also needs to have more detailed consumption data based on income groups and regions. With this information, changes in the public's economic capacity can be identified more quickly without relying solely on overall sales data.

The same attention needs to be given to workers in the digital informal sector, such as ojol drivers.

The measure of welfare for this group should not stop at gross income but should also consider fuel costs, vehicle maintenance, installments, and other operational costs that must be borne every day.

Ultimately, nominal wage increases are important, but they are not the only measure of worker welfare.

What is more decisive is how much that income can maintain purchasing power after facing the prices of necessities, installments, transportation costs, and various household expenses.

When income increases but the cost of living rises faster, the middle class remains in a vulnerable position. If this trend continues, the impact will be felt not only in people's wallets but also on the strength of consumption and national economic growth.