Using Historical Data and Purchase Power Parity Equivalency
FEATURED PAPER
By Muhammad Artono
Tangerang Selatan, Indonesia
ABSTRACT
This study focuses on predicting the future of Indonesia’s minimum wage using two different types of methods. The first type of approach uses past values over a certain period, and the second uses the equivalency with the price of certain goods’ historical data. This analysis’s feasible methods are MS Excel’s “Best Fit” regression analysis curve, Monte Carlo simulation using MS Excel, and the use of other good’s price as an equivalency index (Gold and Burger Big Mac). The MS Excel “Best Fit Regression” shows the best performance due to 5.32 IDR Million/Month in 2022. Base on this study, three significant factors support this MS Excel “Best Fit Regression” as the best prediction method: The method using the past data itself, no analogies data or borrowing other item data, the similarity of the characteristic data between the projection item and baseline data, and various alternatives according to trend line solution.
Keywords: Indonesia Minimum Wage, Labor, Monte Carlo, Big Mac, Gold, MS Excel
INTRODUCTION
- The Indonesia Minimum Wage
“The regulation of minimum wage in Indonesia was set in the Regulation of the Minister of Manpower No. 15/2018 on Minimum Wage”[1]. The minimum wage shall be the lowest wage consisting of the standard salary or the basic salary and the Governors’ fixed allowance as a safety net. The minimum wages of each region are issued and updated annually by Governors[2].
Wages are determined annually through a long process. At first, the Regional Wage Council (DPD) consisted of bureaucrats, academics, laborers, and entrepreneurs. They held a meeting, formed a survey team, and went to the field to determine the price of a number of needs needed by employees laborers2. The decent living needs component is used as the basis for determining the minimum wage based on a single (unmarried) worker’s living needs.
In Indonesia, the minimum wage is the foundation for the formulation of labor costs. The minimum wage standard will affect the labor cost. According to the Construction Labor Market Analyzer, the percentage of construction labor costs should be 20 to 40% of total cost3.
Figure 1. Estimated Allocation of Construction Cost3.
This study aimed to predict Indonesia’s minimum wage as it is a significant part of Indonesia’s labor cost structure for any projects. The ability to indicate one of the substantial components of a project can minimize the possibility of underestimation and overestimation in a project.
- The Clusters of Method for Predicting Indonesia’s Minimum Wage
This study focuses on predicting the future minimum wage using two different types of methods. The first type of method utilizes the past values in a certain period to determine the value of a point in the future. According to Stephen J. C. Paterson4, there are eight common cost forecasting methods that use past values as the data. Two of the feasible techniques in this study are MS Excel’s “Best Fit” regression analysis curve and Monte Carlo simulation using MS Excel. Those two methods are categorized in the first cluster of methods, which projects the value of a variable by employing the past variable’s values.
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How to cite this paper: Artono, M. (2020). Predicting the Future Minimum Wage in Indonesia Using Historical Data and Purchase Power Parity Equivalency; PM World Journal, Vol. X, Issue I, January. Available online at https://pmworldlibrary.net/wp-content/uploads/2021/01/pmwj101-Jan2021-Artono-predicting-future-minimum-wage-in-indonesia.pdf
About the Author
Muhammad Artono
Tangerang Selatan, Indonesia
Muhammad Artono is a project engineer with six years of professional experience in the oil and gas sectors. Currently, he works as an engineer at Downstream Division of Infrastructure and Management Project, PT Pertamina. He holds a bachelor’s degree in Physics Engineering from Institut Teknologi Bandung. He is attending a distance learning mentoring course under the tutorage of Dr. Paul D. Giammalvo, CDT, CCE, MScPM, MRICS, GPM-m Senior Technical Advisor, PT Mitrata Citragraha, to attain Certified Cost Professional certification from AACE International. He lives in Tangerang Selatan, Indonesia, and can be contacted at muhammad.artono133@gmail.com .
[1]Menteri Ketenagakerjaan Republik Indonesia. (n.d.). Peraturan Menteri Ketenagakerjaan Republik Indonesia Nomor 15 Tahun 2018. JDIH Kemnaker. https://jdih.kemnaker.go.id/data_puu/Permen_15_2018.pdf
2Vivie Kartika Ayu. (n.d.). Proses Perumusan Kebijakan Upah Minimum Kota Semarang. Neliti. https://media.neliti.com/media/publications/183009-ID-proses-perumusankebijakan-upah-minimum-k.pdf
3Construction Labor Market Analyzer. (n.d.). CLMA® Project Labor Cost Allocation. Construction Skilled Labor Risk Analytics | CLMA®. https://myclma.com/wp-content/uploads/2015/02/CLMA-Allocation-of-Project-Cost-2014Oct27.pdf
4Stephen J.C Paterson. (2018, January). A Comparison Between 8 Common Cost Forecasting Methods. PM World Journal. https://pmworldlibrary.net/wp-content/uploads/2018/01/pmwj66-Jan2018-Paterson-comparison-of-8-common-forecasting-methods-featured-paper.pdf
