Does the minimum wage affect employment ? evidence from the manufacturing sector in Indonesia
AbstractUsing 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 InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 6147.
Date of creation: 01 Jul 2012
Date of revision:
Labor Markets; Labor Policies; Microfinance; Corporate Social Responsibility; Tertiary Education;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-29 (All new papers)
- NEP-DEV-2012-07-29 (Development)
- NEP-LAB-2012-07-29 (Labour Economics)
- NEP-LMA-2012-07-29 (Labor Markets - Supply, Demand, & Wages)
- NEP-SEA-2012-07-29 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- Veerle Miranda, 2011. "Cooking, Caring and Volunteering: Unpaid Work Around the World," OECD Social, Employment and Migration Working Papers 116, OECD Publishing.
- 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.
- 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.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- The impact of the minimum wage in a developing economy
by Economic Logician in Economic Logic on 2012-08-13 15:08:00
- 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).
- 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.
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