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The Relationship Between Labor Wage and the Labor Productivity of the Indonesian Textile and Garment Industry

Author

Listed:
  • Tiara Maharani

    () (Master of Applied Economics, Padjadjaran University)

  • Maman Setiawan

    () (Faculty of Economics and Business, University of Padjadjaran)

Abstract

The textile and garment industry is one of the leading industries in Indonesia. However, the industry has been facing a problem with the increase in labor wage, which has,in turn increased the cost of production and led to a decrease in competitiveness. Therefore, the competitiveness can be increased by increasing labor productivity. This paper investigated the correlation between labor productivity, labor wage, and other factors such as capital and firm ownership in the Indonesian textile and garment industry by employing a pooled regression methodology for the periods between 2001 and 2015. By utilizing the Indonesian Medium and Large Manufacturing Survey, particularly in the context of the spinning, weaving, and apparel subsectors, we found that in the all of subsectors, labor wage has a positive correlation and statistically significant with labor productivity. Furthermore, the estimated results indicated that labor productivity is affected by an increase in capital, especially in the Indonesian textile and garment industry. The result suggested that labor wage and capital boosting can be utilized to boost labor productivity. The result implies that foreign ownership should be more opened in the Indonesian textile and garment industry, especially in Apparel subsector.

Suggested Citation

  • Tiara Maharani & Maman Setiawan, 2019. "The Relationship Between Labor Wage and the Labor Productivity of the Indonesian Textile and Garment Industry," Working Papers in Economics and Development Studies (WoPEDS) 201902, Department of Economics, Padjadjaran University, revised Jan 2020.
  • Handle: RePEc:unp:wpaper:201902
    as

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    File URL: http://ceds.feb.unpad.ac.id/wopeds/201902.pdf
    File Function: First version, 2019
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    References listed on IDEAS

    as
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    5. Bjuggren, Carl Magnus, 2018. "Employment protection and labor productivity," Journal of Public Economics, Elsevier, vol. 157(C), pages 138-157.
    6. Zhang, Jun & Liu, Xiaofeng, 2013. "The evolving pattern of the wage–labor productivity nexus in China: Evidence from manufacturing firm-level data," Economic Systems, Elsevier, vol. 37(3), pages 354-368.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    labor productivity; competitiveness;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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