The Correlation Between the Presence of MSMEs and the Minimum Wage in the Special Region of Yogyakarta in 2019

Abstract

Micro, Small, and Medium Enterprises (MSMEs) are businesses based on creative industries. With a foundation in creativity, MSMEs can adapt to the current needs of society. MSMEs contribute significantly to the Indonesian economy by absorbing approximately 50% of the workforce. MSMEs have been growing rapidly across Indonesia, particularly in the Special Region of Yogyakarta. In 2019, there were 248,499 MSMEs recorded in this region. The large number of MSMEs in Yogyakarta provides significant employment opportunities and workforce absorption. However, despite the high number of MSMEs, a persistent issue for workers in the region is relatively low wages compared to other areas. The Regional Minimum Wage (UMR) in the Special Region of Yogyakarta was Rp 1,570,923 per month in 2019, making it the lowest in Indonesia. This poses a dilemma for the Yogyakarta regional government. Raising the minimum wage could potentially harm creative industries such as MSMEs, which might struggle with increased operational costs, including labor expenses. The authors seek to explore the correlation between the existence of MSMEs in Yogyakarta and the regional government's policy in determining the minimum wage, considering several aspects: 1) The number of MSMEs in Yogyakarta; 2) The number of workers absorbed by MSMEs; 3) The minimum wage in Yogyakarta; 4) The comparison between MSME revenues and labor costs. On average, MSMEs employ 1-2 workers, with monthly revenues averaging around Rp 4.3 million. This revenue is typically reinvested into operational expenses. If an MSME employs 1-2 workers, it needs to allocate Rp 1.5–3 million per month to pay wages. If the government raises the minimum wage, MSME operational costs would increase, potentially threatening the sustainability of these enterprises.