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


  • Tiara Maharani

    () (Master of Applied Economics, Padjadjaran University)

  • Maman Setiawan

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


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

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    References listed on IDEAS

    1. Kenta Goto & Tamaki Endo, 2014. "Labor-intensive industries in middle-income countries: traps, challenges, and the local garment market in Thailand," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 19(2), pages 369-386, April.
    2. Ramstetter, Eric D., 2004. "Labor productivity, wages, nationality, and foreign ownership shares in Thai manufacturing, 1996-2000," Journal of Asian Economics, Elsevier, vol. 14(6), pages 861-884, January.
    3. Shandre Mugan Thangavelu & Gulasekaran Rajaguru, 2004. "Is there an export or import-led productivity growth in rapidly developing Asian countries? a multivariate VAR analysis," Applied Economics, Taylor & Francis Journals, vol. 36(10), pages 1083-1093.
    4. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
    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.
    7. Feldstein, Martin, 2008. "Did wages reflect growth in productivity?," Journal of Policy Modeling, Elsevier, vol. 30(4), pages 591-594.
    8. Archanun Kohpaiboon, 2003. "Foreign trade regimes and the FDI-Growth Nexus: a case study of Thailand," Journal of Development Studies, Taylor & Francis Journals, vol. 40(2), pages 55-69.
    9. Mohammad Zulfan Tadjoeddin & Ilmiawan Auwalin & Anis Chowdhury, 2016. "Revitalizing Indonesia’s manufacturing: the productivity conundrum," Departmental Working Papers 2016-20, The Australian National University, Arndt-Corden Department of Economics.
    10. Bjuggren, Carl Magnus, 2013. "The Effect of Employment Protection Rules on Firm Productivity - A Natural Experiment," HUI Working Papers 82, HUI Research, revised 30 Oct 2013.
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    More about this item


    labor productivity; competitiveness;

    JEL classification:

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

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