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Does the minimum wage affect employment ? evidence from the manufacturing sector in Indonesia

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Author Info

  • Del Carpio, Ximena
  • Nguyen, Ha
  • Wang, Liang Choon

Abstract

Using survey data from the Indonesian manufacturing industry, this paper investigates the impact of minimum wage on employment and wages offered by Indonesian manufacturing firms from 1993 to 2006. It shows that the estimated effects of minimum wage on employment are positive within a province (i.e., with province fixed effects), but negative within a firm (i.e., with firm fixed effects), indicating the importance of using firm panel data to reduce the endogeneity bias in estimates. It finds significant heterogeneous effects of minimum-wage changes on employment. The employment effects of minimum wages are significant and negative among small firms and less educated workers, but not among large firms and workers with high school education and above. The negative employment impact is more severe for non-production workers than for production workers. The analysis also shows that the minimum wage disproportionally affects women: most of the non-production job losses are experienced by female workers. Lastly, the paper finds that the minimum wage is more correlated with the average wage of small firms than that of large firms, suggesting that minimum wages are more binding in small firms.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6147.

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Date of creation: 01 Jul 2012
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Handle: RePEc:wbk:wbrwps:6147

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Related research

Keywords: Labor Markets; Labor Policies; Microfinance; Corporate Social Responsibility; Tertiary Education;

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References

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  1. Burkhauser, Richard V & Couch, Kenneth A & Wittenburg, David C, 2000. "A Reassessment of the New Economics of the Minimum Wage Literature with Monthly Data from the Current Population Survey," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 653-80, October.
  2. Vivi Alatas & Lisa A. Cameron, 2008. "The Impact of Minimum Wages on Employment in a Low-Income Country: a Quasi-Natural Experiment in Indonesia," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 61(2), pages 201-223, January.
  3. Veerle Miranda, 2011. "Cooking, Caring and Volunteering: Unpaid Work Around the World," OECD Social, Employment and Migration Working Papers 116, OECD Publishing.
  4. Magruder, Jeremy R., 2013. "Can minimum wages cause a big push? Evidence from Indonesia," Journal of Development Economics, Elsevier, vol. 100(1), pages 48-62.
  5. Kristensen, Nicolai & Cunningham, Wendy, 2006. "Do minimum wages in Latin America and the Caribbean matter ? Evidence from 19 countries," Policy Research Working Paper Series 3870, The World Bank.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The impact of the minimum wage in a developing economy
    by Economic Logician in Economic Logic on 2012-08-13 15:08:00
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Cited by:
  1. Sudip Ranjan Basu & Yusuke Tateno, . "Minimum wage policies to boost inclusive growth," MPDD Policy Briefs PB16, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
  2. Del Carpio, Ximena & Messina, Julián & Sanz-de-Galdeano, Anna, 2014. "Minimum Wage: Does It Improve Welfare in Thailand?," IZA Discussion Papers 7911, Institute for the Study of Labor (IZA).
  3. Anna Kochanova, 2012. "The Impact of Bribery on Firm Performance: Evidence from Central and Eastern European Countries," CERGE-EI Working Papers wp473, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. David Robalino & Michael Weber, 2013. "Designing and implementing unemployment benefit systems in middle and low income countries: beyond risk-pooling vs savings," IZA Journal of Labor Policy, Springer, vol. 2(1), pages 1-20, December.
  5. Betcherman, Gordon, 2014. "Labor market regulations : what do we know about their impacts in developing countries ?," Policy Research Working Paper Series 6819, The World Bank.
  6. Mehta, Aashish & Sun, Wei, 2013. "Does Industry Affiliation Influence Wages? Evidence from Indonesia and the Asian Financial Crisis," World Development, Elsevier, vol. 51(C), pages 47-61.

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