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The Heterogeneous Effects of a Minimum Wage Policy on Hours Worked and Real Wages in Indonesia

Author

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  • Lestari Agusalim

    (Department of Development Economics, Trilogi University, Jakarta, Indonesia; Doctoral Student in the Department of Economics, IPB University, Indonesia)

  • Hermanto Siregar

    (Department of Economics, IPB University, Bogor, Indonesia)

  • Lukytawati Anggraeni

    (Department of Economics, IPB University, Bogor, Indonesia)

  • Sri Mulatsih

    (Department of Economics, IPB University, Bogor, Indonesia)

Abstract

This research investigates the heterogeneous effects of the minimum wage policy on hours worked and real wages among low-wage workers in Indonesia. By employing repeated cross-sectional data from the National Labor Force Survey spanning 2020 to 2023, a fully flexible difference in differences (DID) method indicates that the policy resulted in a decrease in average hours worked within the treatment group, while simultaneously increasing real wages. The results demonstrate heterogeneous effects based on economic sector, gender, and region. Across sectors, the impact on hours worked and real wages varies across sectors. Among the 17 sectors analyzed, 8 sectors exhibited significant effects and satisfied the common trend assumption. The analysis by gender shows that women were more prone to experiencing a decrease in hours worked, while men gained more from the rise in real wages. Regionally, the impact of the policy varied between urban and rural workers and evolved over time, reflecting local dynamics in policy acceptance. A robustness test confirmed the consistency and statistical significance of these findings across all model specifications, even with changes in the wage thresholds used to define the treatment and control groups.

Suggested Citation

  • Lestari Agusalim & Hermanto Siregar & Lukytawati Anggraeni & Sri Mulatsih, 2025. "The Heterogeneous Effects of a Minimum Wage Policy on Hours Worked and Real Wages in Indonesia," Economic Research Guardian, Mutascu Publishing, vol. 15(1), pages 88-115, June.
    • Handle: RePEc:wei:journl:v:15:y:2025:i:1:p:88-115
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    More about this item

    Keywords

    Fully flexible DID; Hours worked; Low-wage worker; Minimum wage; Real wages;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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