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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
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    References listed on IDEAS

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    1. 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.
    2. 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.
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    More about this item

    Keywords

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    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

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