IDEAS home Printed from https://ideas.repec.org/a/spr/ijlaec/v68y2025i1d10.1007_s41027-025-00563-3.html
   My bibliography  Save this article

Minimum Wages and Labour-Intensive Industry: Experience from Indonesia

Author

Listed:
  • Padang Wicaksono

    (University of Indonesia)

  • Muhammad Fadhil Firjatullah

    (University of Indonesia)

  • Aditya Harin Nugroho

    (University of Indonesia)

  • Priyanto

    (University of Indonesia)

Abstract

There has been a long-standing debate about the effectiveness of minimum wages as a social welfare policy for labour. To continue this discussion, this study aims to compare the effects of minimum wage policy towards the employment rate and average worker’s wage in Indonesia’s labour-intensive and capital-intensive industries. By using panel data from Indonesia Annual Manufacturing Survey for the years 2011–2015, this study found that an increase in the regional minimum wage has a positive relationship with the employment rate in labour-intensive yet not in capital-intensive industries. Moreover, this study also shows the existence of a positive relationship between the minimum wage level and the average worker’s wage in labour-intensive industries. On the contrary, in capital-intensive industries, an increase in the minimum wage level significantly diminishes worker’s average wages.

Suggested Citation

  • Padang Wicaksono & Muhammad Fadhil Firjatullah & Aditya Harin Nugroho & Priyanto, 2025. "Minimum Wages and Labour-Intensive Industry: Experience from Indonesia," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 68(1), pages 119-140, March.
    • Handle: RePEc:spr:ijlaec:v:68:y:2025:i:1:d:10.1007_s41027-025-00563-3
    DOI: 10.1007/s41027-025-00563-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s41027-025-00563-3
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s41027-025-00563-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Asep Suryahadi & Wenefrida Widyanti & Daniel Perwira & Sudarno Sumarto, 2003. "Minimum Wage Policy And Its Impact On Employment In The Urban Formal Sector," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 39(1), pages 29-50.
    2. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March.
    3. John Kennan, 1995. "The Elusive Effects of Minimum Wages," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1950-1965, December.
    4. Tifani Husna Siregar, 2020. "Impacts of minimum wages on employment and unemployment in Indonesia," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 25(1), pages 62-78, January.
    5. Vivi Alatas & Lisa A. Cameron, 2008. "The Impact of Minimum Wages on Employment in a Low-Income Country: A Quasi-Natural Experiment in Indonesia," ILR Review, Cornell University, ILR School, vol. 61(2), pages 201-223, January.
    6. Ximena Del Carpio & Ha Nguyen & Laura Pabon & Liang Wang, 2015. "Do minimum wages affect employment? Evidence from the manufacturing sector in Indonesia," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-30, December.
    7. Leo Sukatrilaksana, 2002. "The Effect Of Minimum Wages On Employment In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 5(3), pages 74-121, December.
    8. Thomas C. Leonard, 2000. "The Very Idea of Applying Economics: The Modern Minimum-Wage Controversy and Its Antecedents," History of Political Economy, Duke University Press, vol. 32(5), pages 117-144, Supplemen.
    9. repec:idn:journl:v:5:y:2002:i:3:p:1-48 is not listed on IDEAS
    10. Chris Manning & Kurnya Roesad, 2007. "The Manpower Law of 2003 and its implementing regulations: Genesis, key articles and potential impact," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 43(1), pages 59-86.
    11. Maike Hohberg & Jann Lay, 2015. "The impact of minimum wages on informal and formal labor market outcomes: evidence from Indonesia," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-25, December.
    12. Wendy Cunningham, 2007. "Minimum Wages and Social Policy : Lessons from Developing Countries," World Bank Publications - Books, The World Bank Group, number 6760, April.
    13. Rothenberg, Alexander D. & Gaduh, Arya & Burger, Nicholas E. & Chazali, Charina & Tjandraningsih, Indrasari & Radikun, Rini & Sutera, Cole & Weilant, Sarah, 2016. "Rethinking Indonesia’s Informal Sector," World Development, Elsevier, vol. 80(C), pages 96-113.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Neumark, David & Munguía Corella, Luis Felipe, 2021. "Do minimum wages reduce employment in developing countries? A survey and exploration of conflicting evidence," World Development, Elsevier, vol. 137(C).
    2. repec:agg:journl:4065 is not listed on IDEAS
    3. Mary Hallward-Driemeier & Bob Rijkers & Andrew Waxman, 2017. "Can Minimum Wages Close the Gender Wage Gap?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(2), pages 310-334, June.
    4. Maike Hohberg & Jann Lay, 2015. "The impact of minimum wages on informal and formal labor market outcomes: evidence from Indonesia," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-25, December.
    5. Haroon Bhorat & Tara Caetano & Benjamin Jourdan & Ravi Kanbur & Christopher Rooney & Benjamin Stanwix & Ingrid Woolard, 2016. "Investigating the Feasibility of a National Minimum Wage for South Africa," Working Papers 201601, University of Cape Town, Development Policy Research Unit.
    6. Phan Kim Dung, 2017. "The effects of minimum wage hikes on employment and wages in Vietnam’s micro, small, and medium enterprises," WIDER Working Paper Series 095, World Institute for Development Economic Research (UNU-WIDER).
    7. Gerard J. van den Berg, 2003. "Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1337-1357, November.
    8. Pandelis Mitsis, 2019. "The Impact of the Minimum Wage on Wages and Work in Cyprus," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 13(2), pages 72-101, December.
    9. Tushar Bharati & Adnan M. S. Fakir & Wina Yoman, 2024. "Internal Migration and Labor Market Outcomes in Indonesia," Economic Development and Cultural Change, University of Chicago Press, vol. 72(2), pages 997-1040.
    10. Pandelis Mitsis, 2015. "Effects of Minimum Wages on Total Employment: Evidence from Cyprus," Journal of Labor Research, Springer, vol. 36(3), pages 318-345, September.
    11. World Bank, 2013. "Minimum Wage Policy : Lessons with a Focus on the ASEAN Region," World Bank Publications - Reports 16687, The World Bank Group.
    12. Sjöholm, Fredrik, 2020. "Minimum Wages and Firm-Level Employment in a Developing Country," Working Papers 2020:4, Lund University, Department of Economics.
    13. Ximena V. del Carpio & Julián Messina & Anna Sanz‐de‐Galdeano, 2019. "Minimum Wage: Does it Improve Welfare in Thailand?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(2), pages 358-382, June.
    14. Arindrajit Dube & Attila Lindner, 2024. "Minimum Wages in the 21st Century," RF Berlin - CReAM Discussion Paper Series 2425, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
    15. Haroon Bhorat & Ravi Kanbur & Benjamin Stanwix, 2017. "Minimum Wages in Sub-Saharan Africa: A Primer," The World Bank Research Observer, World Bank, vol. 32(1), pages 21-74.
    16. Krisztina Kis-Katos & Robert Sparrow, 2011. "Child Labor and Trade Liberalization in Indonesia," Journal of Human Resources, University of Wisconsin Press, vol. 46(4), pages 722-749.
    17. Hristos Doucouliagos & T. D. Stanley, 2009. "Publication Selection Bias in Minimum‐Wage Research? A Meta‐Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 406-428, June.
    18. Ariani & Devanto Shasta Pratomo & Marlina Ekawaty & David Kaluge, 2024. "Absorption of Formal and Informal Sector Workers through the Minimum Wage: Studies in Indonesia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 128-143.
    19. Shrestha, Rashesh & Coxhead, Ian, 2018. "Export boom, employment bust? The paradox of Indonesia's displaced workers, 2000-14," CEI Working Paper Series 2018-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    20. Ximena Del Carpio & Ha Nguyen & Laura Pabon & Liang Wang, 2015. "Do minimum wages affect employment? Evidence from the manufacturing sector in Indonesia," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-30, December.
    21. Dyah Savitri Pritadrajati, 2021. "Determinants Of School Enrolment In Indonesia: The Role Of Minimum Wage," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 24(2), pages 181-204, June.

    More about this item

    Keywords

    Minimum wages; Labour-intensive; Capital-intensive; Employment; Wages;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:ijlaec:v:68:y:2025:i:1:d:10.1007_s41027-025-00563-3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.