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Productivity, wages and employment: evidence from the Indonesia's manufacturing sector

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  • Mohammad Zulfan Tadjoeddin

Abstract

This paper examines the links between productivity, wages and employment in Indonesia's manufacturing sector utilizing the rich datasets of National Labour Force Survey (Sakernas), National Income Account and Manufacturing Statistics. A decoupling trend between real wages and productivity in the overall manufacturing sector is evident, but the dynamics within the sector is far from homogenous. Wages and productivity are further disaggregated into large–medium (LM) and cottage–small (CS) manufacturing firms and significant gaps between LM and CS firms are found. This paper challenges the conventional wisdom of negative wage elasticity with respect to employment. In contrast to the overall diverging trend between real wage and productivity in the overall manufacturing sector, a positive link between wages and productivity in the LM manufacturing industry has led to a positive correlation between wages and employment. This is analogous to the ideal situation where both productivity and wage increase, while the overall economy (employment and output) expands.

Suggested Citation

  • Mohammad Zulfan Tadjoeddin, 2016. "Productivity, wages and employment: evidence from the Indonesia's manufacturing sector," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 21(4), pages 489-512, October.
    • Handle: RePEc:taf:rjapxx:v:21:y:2016:i:4:p:489-512
    DOI: 10.1080/13547860.2016.1153227
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    References listed on IDEAS

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    1. World Bank, 2010. "Indonesia Jobs Report," World Bank Publications - Reports 27901, The World Bank Group.
    2. Andrew Sharpe & Jean-François Arsenault & Peter Harrison, 2008. "The Relationship between Productivity and Real Wage Growth in Canada and OECD Countries, 1961-2006," CSLS Research Reports 2008-08, Centre for the Study of Living Standards.
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    Cited by:

    1. Jurica Bosna, 2018. "Estimation Of The Great Decoupling On The Example Of Croatia, As Compared With Germany And Poland," Poslovna izvrsnost/Business Excellence, Faculty of Economics and Business, University of Zagreb, vol. 12(1), pages 33-52.
    2. Yanling Jin & Yi Xu & Rui Li & Changping Zhao & Zhenghui Yuan, 2022. "Comprehensive Evaluation of China’s Input–Output Sector Status Based on the Entropy Weight-Social Network Analysis Method," Sustainability, MDPI, vol. 14(21), pages 1-25, November.
    3. Ladislav Suhányi & Alžbeta Suhányiová & Jaroslava Kádárová & Jaroslava Janeková, 2023. "Relationships between Average Wages in the Manufacturing Sector and Economic Indicators of the Manufacturing Sector in the Region of Visegrad Group Countries," Sustainability, MDPI, vol. 15(5), pages 1-19, February.
    4. Tomás Gómez Rodríguez & Humberto Ríos Bolívar & Ali Aali Bujari, 2018. "Salario eficiente y crecimiento económico para el caso de América Latina. (Efficient wages and Economic Growth in Latin America)," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 213-235, October.

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