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The minimum wage, exports, and firm performance: Evidence from Indonesia

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  • Ni, Bin
  • Kurita, Kyosuke

Abstract

This paper examines the interrelationship between changes in the provincial minimum wage, firms’ export behavior, and firms’ performance in Indonesia. In this regard, we apply a two-stage least squares regression analysis to detailed firm-level data of manufacturing enterprises during 2002–2014. We find that an increase in the minimum wage is associated with a decrease in a firm’s employment and productivity, but increase in its probability of exporting and markup. We also use the 2012 minimum wage reform in Indonesia to conduct a difference-in-difference analysis to further mitigate the potential endogeneity of minimum wage regulation. Our findings are generally robust to alternative estimation methods. Moreover, quantile regression results indicate that the average wage, firm size, and the education level of workers also affect the predictions. Above all, this study suggests that Indonesian exports and the country’s comparative advantage in international markets are not negligibly affected by higher labor costs caused by the growth in the minimum wage.

Suggested Citation

  • Ni, Bin & Kurita, Kyosuke, 2020. "The minimum wage, exports, and firm performance: Evidence from Indonesia," Journal of Asian Economics, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:asieco:v:69:y:2020:i:c:s1049007820300981
    DOI: 10.1016/j.asieco.2020.101218
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    More about this item

    Keywords

    Minimum wage; Firm performance; Indonesia; Difference-in-difference;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy

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