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The Impact of Minimum Wage Policy on Wages and Employment in Developing Countries: The Case of Indonesia

Author

Listed:
  • Asep Suryahadi,

    () (SMERU Research Institute, Jakarta)

  • Wenefrida Widyanti

    (SMERU Research Institute, Jakarta)

  • Daniel Perwira

    (SMERU Research Institute, Jakarta)

  • Sudarno Sumarto

    (SMERU Research Institute, Jakarta)

Abstract

Since the late 1980s, minimum wage have become an important plank of the Indonesian government's labour policy. Minimum wages have increased faster than average wages and GDP. As a result, minimum wages have become binding for the majority of workers. This study finds that minimum wages have a positive but statistically insignificant impact on average wages. On the other hand, minimum wages have a negative and statistically significant impact on employment. In particular, the disemployment impact is greatest for women, youth, and less educated workers. However, the employment prospects of white-collar workers are enhanced by increases in minimum wages.

Suggested Citation

  • Asep Suryahadi, & Wenefrida Widyanti & Daniel Perwira & Sudarno Sumarto, 2001. "The Impact of Minimum Wage Policy on Wages and Employment in Developing Countries: The Case of Indonesia," Economics Study Area Working Papers 38, East-West Center, Economics Study Area.
  • Handle: RePEc:ewc:wpaper:wp38
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    References listed on IDEAS

    as
    1. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    2. Manning,Chris, 1998. "Indonesian Labour in Transition," Cambridge Books, Cambridge University Press, number 9780521594127, December.
    3. Chris Manning, 2000. "Labour Market Adjustment to Indonesia's Economic Crisis: Context, Trends and Implications," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(1), pages 105-136.
    4. Agrawal, Nisha, 1996. "The benefits of growth for Indonesian Workers," Policy Research Working Paper Series 1637, The World Bank.
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