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The impact of minimum wages on employment in a low income country : an evaluation using the difference-differences approach

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  • Alatas, Vivi
  • Cameron, Lisa

Abstract

Unlike the well-developed literature on the employment impact of the minimum wage in industrial nations, very little is known about minimum wage effects in low income countries. Minimum wages increased sharply in Indonesia between 1990 and 1996 and by more in some provinces than in others. Following Card and Krueger (1994) the authors exploit the large geographic variation in the rate of increase and compare changes in employment in the clothing, textile, footwear, and leather industries on either side of the Jakarta-West Java border. They use household level labor market data to establish compliance with the legislation. They obtain matched difference-in-difference estimates of the employment impact using a census of all large and medium-size firms in the clothing, textile, leather, and footwear industries. The authors find some evidence of a negative employment impact for small, domestic firms but no employment impact for large firms, foreign or domestic.

Suggested Citation

  • 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.
    • Handle: RePEc:wbk:wbrwps:2985
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    References listed on IDEAS

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    1. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 72-101, July.
    2. Martín Rama, 2001. "The Consequences of Doubling the Minimum Wage: The Case of Indonesia," ILR Review, Cornell University, ILR School, vol. 54(4), pages 864-881, July.
    3. Manning,Chris, 1998. "Indonesian Labour in Transition," Cambridge Books, Cambridge University Press, number 9780521594127, January.
    4. Harrison, Ann E & Leamer, Edward, 1997. "Labor Markets in Developing Countries: An Agenda for Research," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 1-19, July.
    5. Alida Castillo Freeman & Richard B. Freeman, 1991. "Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor?," NBER Working Papers 3759, National Bureau of Economic Research, Inc.
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