Does the Minimum Wage Affect Employment? Evidence from the Manufacturing Sector in Indonesia
Using survey data from the Indonesian manufacturing industry, this paper investigates the impact of minimum wage on employment and wages offered by Indonesian manufacturing firms from 1993 to 2006. It shows that the estimated effects of minimum wag...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2012/07/16534664/minimum-wage-affect-employment-evidence-manufacturing-sector-indonesia http://hdl.handle.net/10986/12000 |
| Summary: | Using survey data from the Indonesian
manufacturing industry, this paper investigates the impact
of minimum wage on employment and wages offered by
Indonesian manufacturing firms from 1993 to 2006. It shows
that the estimated effects of minimum wage on employment are
positive within a province (i.e., with province fixed
effects), but negative within a firm (i.e., with firm fixed
effects), indicating the importance of using firm panel data
to reduce the endogeneity bias in estimates. It finds
significant heterogeneous effects of minimum-wage changes on
employment. The employment effects of minimum wages are
significant and negative among small firms and less educated
workers, but not among large firms and workers with high
school education and above. The negative employment impact
is more severe for non-production workers than for
production workers. The analysis also shows that the minimum
wage disproportionally affects women: most of the
non-production job losses are experienced by female workers.
Lastly, the paper finds that the minimum wage is more
correlated with the average wage of small firms than that of
large firms, suggesting that minimum wages are more binding
in small firms. |
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