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The Impact of Minimum Wage Policy on Wages and Employment in Developing Countries: The Case of Indonesia

Author

Listed:
  • Asep Suryahadi,

    (SMERU Research Institute, Jakarta)

  • Wenefrida Widyanti

    (SMERU Research Institute, Jakarta)

  • Daniel Perwira

    (SMERU Research Institute, Jakarta)

  • Sudarno Sumarto

    (SMERU Research Institute, Jakarta)

Abstract
Since the late 1980s, minimum wage have become an important plank of the Indonesian government's labour policy. Minimum wages have increased faster than average wages and GDP. As a result, minimum wages have become binding for the majority of workers. This study finds that minimum wages have a positive but statistically insignificant impact on average wages. On the other hand, minimum wages have a negative and statistically significant impact on employment. In particular, the disemployment impact is greatest for women, youth, and less educated workers. However, the employment prospects of white-collar workers are enhanced by increases in minimum wages.

Suggested Citation

  • Asep Suryahadi, & Wenefrida Widyanti & Daniel Perwira & Sudarno Sumarto, 2001. "The Impact of Minimum Wage Policy on Wages and Employment in Developing Countries: The Case of Indonesia," Economics Study Area Working Papers 38, East-West Center, Economics Study Area.
    • Handle: RePEc:ewc:wpaper:wp38
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    File URL: http://www.eastwestcenter.org/fileadmin/stored/pdfs/ECONwp038.pdf
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    References listed on IDEAS

    as
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    7. Cox Edwards, Alejandra, 1996. "Labor regulations and industrial relations in Indonesia," Policy Research Working Paper Series 1640, The World Bank.
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    9. Martín Rama, 2001. "The Consequences of Doubling the Minimum Wage: The Case of Indonesia," ILR Review, Cornell University, ILR School, vol. 54(4), pages 864-881, July.
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    Cited by:

    1. Dieter Ernst, 2004. "Searching for a New Role in East Asian Regionlization: Japanese Production Networks in the Electronics Industry," Economics Study Area Working Papers 68, East-West Center, Economics Study Area.
    2. Dody Budi Waluyo, 2018. "Globalisation and deglobalisation: the Indonesian perspective," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and deglobalisation, volume 100, pages 173-182, Bank for International Settlements.
    3. Boy Luethje, 2004. "Global Production Networks and Industrial Upgrading in China: The Case in Electronics Contract Manufacturing," Economics Study Area Working Papers 74, East-West Center, Economics Study Area.
    4. Ximena Del Carpio & Ha Nguyen & Laura Pabon & Liang Wang, 2015. "Do minimum wages affect employment? Evidence from the manufacturing sector in Indonesia," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-30, December.
    5. Attakrit Leckcivilize, 2015. "Does the minimum wage reduce wage inequality? Evidence from Thailand," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-23, December.

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