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Salaried Employment and Earnings in Indonesia: New evidence on the selection bias

Author

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  • Margherita Comola

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Luiz de Mello

    (OCDE Economics Départment - OCDE - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)

Abstract

This article uses household survey data to estimate the determinants of earnings in Indonesia, a country where nonsalaried work is widespread and earnings data are available for salaried employees only. We deal with the selection bias by estimating a Full-Information Maximum Likelihood (FIML) system of equations, where selection into the labour market is modelled in a multinomial setting. We find that some estimated parameters of the earnings equation differ from a binomial selection procedure by Heckman (1979), in particular for those variables with the strongest impact on the selection into the different labour-market statuses. However, the estimated returns to education are unaffected, even when we deal with the endogeneity of educational attainment following Duflo (2001). Overall, our findings show that the choice of the selection rule affects the estimates of the earnings determinants in the Indonesian labour market.

Suggested Citation

  • Margherita Comola & Luiz de Mello, 2013. "Salaried Employment and Earnings in Indonesia: New evidence on the selection bias," PSE-Ecole d'économie de Paris (Postprint) hal-00684162, HAL.
    • Handle: RePEc:hal:pseptp:hal-00684162
    DOI: 10.1080/00036846.2012.667551
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    References listed on IDEAS

    as
    1. Daniel Suryadarma & Asep Suryahadi & Sudarno Sumarto, "undated". "Reducing Unemployment in Indonesia: Results from a Growth-Employment Elasticity Model," Working Papers 350, Publications Department.
    2. Viktor Pirmana, 2006. "Earnings Differential Between Male-Female In Indonesia: Evidence From Sakernas Data," Working Papers in Economics and Development Studies (WoPEDS) 200608, Department of Economics, Padjadjaran University, revised Aug 2006.
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    4. Andy Dickerson & Francis Green & Jorge Saba Arbache, 2001. "Trade Liberalization and the Returns to Education: A Pseudo-panel Approach," Studies in Economics 0114, School of Economics, University of Kent.
    5. Gaston, Noel & Tenjo, Jaime, 1992. "Educational Attainment and Earnings Determination in Colombia," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 125-139, October.
    6. David Roodman, 2009. "Mixed-process models with cmp," DC09 Stata Conference 11, Stata Users Group.
    7. David Roodman, 2009. "Estimating Fully Observed Recursive Mixed-Process Models with cmp," Working Papers 168, Center for Global Development.
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    3. Ian Coxhead & Rashesh Shrestha, 2016. "Could a Resource Export Boom Reduce Workers’ Earnings? The Labour-Market Channel in Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 52(2), pages 185-208, May.
    4. Mohammad Zulfan Tadjoeddin, 2016. "Earnings, productivity and inequality in Indonesia," The Economic and Labour Relations Review, , vol. 27(2), pages 248-271, June.
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