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Effect of Trade Liberalisation on Wage Inequality in Indonesia

Author

Listed:
  • Watekhi

    (Statistics Indonesia)

  • Nachrowi D. Nachrowi

    (Faculty of Economics and Business, Universitas Indonesia)

  • Djoni Hartono

    (Faculty of Economics and Business, Universitas Indonesia)

  • Arie Damayanti

    (Faculty of Economics and Business, Universitas Indonesia)

Abstract

This study attempts to find out the influence of trade liberalisation on wage inequality in Indonesia. A two-stage estimation approach is used. Using the national labour force survey dataset, the study estimates industry wage premium and industry-specific skill premium in the first stage conditional on individual worker characteristics. In the second stage, the study regresses industry wage premium and industry-specific skill premium on tariff as a measure of trade liberalisation, respectively. It is concluded that trade liberalisation significantly contributes to increasing wage inequality. This contribution occurred through changes in industry wage premium but not industry-specific skill premium.

Suggested Citation

  • Watekhi & Nachrowi D. Nachrowi & Djoni Hartono & Arie Damayanti, 2018. "Effect of Trade Liberalisation on Wage Inequality in Indonesia," Malaysian Journal of Economic Studies, Faculty of Business and Economics, University of Malaya & Malaysian Economic Association, vol. 55(2), pages 209-229, December.
    • Handle: RePEc:mjr:journl:v:55:y:2018:i:2:p:209-229
    DOI: 10.22452/MJES.vol55no2.4
    as

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    More about this item

    Keywords

    Industry-specific skill premium; trade liberalisation; wage inequality; wage premium;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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