MINIMUM WAGE POLICY AND THE DYNAMICS OF LABOR ABSORPTION IN INDONESIA: A PUBLIC-DATA ANALYSIS FROM A PUBLIC ECONOMICS PERSPECTIVE
DOI:
https://doi.org/10.65336/WJEBM.2026.3904Keywords:
minimum wage, labor market, unemployment, public economics, human capital, public data.Abstract
Minimum wage policy is one of the most direct instruments of government intervention in the labor market, intended to protect workers' purchasing power while preserving business sustainability. This article analyzes the dynamics of Indonesia's Provincial Minimum Wage (UMP) policy over 2020–2026 and relates it to labor absorption trends using public data from Indonesia's Central Statistics Agency (BPS) and Ministry of Manpower (Kemnaker). The data show that the national average UMP rose consistently from Rp2.67 million (2020) to Rp3.32 million (2025), with annual increases surging post-pandemic (7.2% in 2023), while the national Open Unemployment Rate (TPT) remained relatively stable in the 4.76–5.32 percent range over the same period not showing the sharp disemployment pattern predicted by the classical competitive-market model. However, the data reveal an important paradox at the segment level: the highest unemployment rates occur precisely among young people (16.89%) and vocational high school (SMK) graduates (8.63%) groups theoretically expected to benefit most from formal human-capital investment. This article uses a descriptive-comparative analysis of secondary public data, without structural model testing (PLS-SEM), and interprets the findings through the public-economics framework on minimum wages (competitive vs. monopsony models) and human capital theory. The findings indicate that the core problem in Indonesia's labor market is not simply disemployment from UMP increases, but a structural mismatch between vocational education output and labor-market needs, implying the need to integrate wage policy with vocational-education policy and formal job creation.
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