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Minimum Wages and Poverty in a Developing Country: Simulations from Indonesia's Household Survey

  • Kelly Bird

    ()

  • Chris Manning

    ()

This study focuses on the efficiency of minimum wage policy for poverty reduction, taking Indonesia as a case study. A simulation approach assesses who benefits and who pays for minimum wage increases. On the benefits side, the rise in minimum wages boosts incomes in households with low wage workers. However, increases in wage costs are passed on through higher consumer prices. As a result, three out of four poor households lose in net terms, even when we assume no job losses. The findings suggest that minimum wages are unlikely to be an effective antipoverty instrument, at least for Indonesia.

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File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2005/wp-econ-2005-09.pdf
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Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2005-09.

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Length: 30 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:pas:papers:2005-09
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  1. Ann Harrison & Jason Scorse, 2004. "Moving Up or Moving Out? Anti-Sweatshop Activists and Labor Market Outcomes," NBER Working Papers 10492, National Bureau of Economic Research, Inc.
  2. repec:cup:cbooks:9780521594127 is not listed on IDEAS
  3. Lustig, N. & Mcleod, D., 1996. "Minimum Wages and Poverty in Developing Countries : Some Empirical Evidence," Papers 125, Brookings Institution - Working Papers.
  4. Gilles Saint-Paul, 1994. "Do Labor Market Rigidities Fulfill Distributive Objectives?: Searching for the Virtues of the European Model," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 624-642, December.
  5. Dollar, David & Kraay, Aart, 2001. "Growth is good for the poor," Policy Research Working Paper Series 2587, The World Bank.
  6. Martφn Rama, 2001. "The Consequences of doubling the minimum wage: The case of Indonesia," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 54(4), pages 864-881, July.
  7. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  8. David Neumark & William Wascher, 1992. "Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws," ILR Review, Cornell University, ILR School, vol. 46(1), pages 55-81, October.
  9. David Neumark & William Wascher, 1997. "Do Minimum Wages Fight Poverty?," NBER Working Papers 6127, National Bureau of Economic Research, Inc.
  10. De Fraja, Gianni, 1999. "Minimum Wage Legislation, Productivity and Employment," Economica, London School of Economics and Political Science, vol. 66(264), pages 473-88, November.
  11. 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.
  12. L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
  13. Burkhauser, Richard V & Couch, Kenneth A & Wittenburg, David C, 2000. "A Reassessment of the New Economics of the Minimum Wage Literature with Monthly Data from the Current Population Survey," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 653-80, October.
  14. Bell, Linda A, 1997. "The Impact of Minimum Wages in Mexico and Colombia," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S102-35, July.
  15. Alatas, Vivi & Cameron, Lisa, 2003. "The impact of minimum wages on employment in a low income country : an evaluation using the difference-differences approach," Policy Research Working Paper Series 2985, The World Bank.
  16. Baker, Michael & Benjamin, Dwayne & Stanger, Shuchita, 1999. "The Highs and Lows of the Minimum Wage Effect: A Time-Series Cross-Section Study of the Canadian Law," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 318-50, April.
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