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 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.

Bibliographic Details

Main Authors:	Wang, Liang Choon, Del Carpio, Ximena, Nguyen, Ha
Language:	English en_US
Published:	World Bank, Washington, DC 2012-07
Subjects:	AVERAGE WAGE, AVERAGE WAGES, BALANCE SHEET, ECONOMIC CONDITIONS, ECONOMIC GROWTH, EDUCATIONAL ATTAINMENT, EFFICIENCY WAGE THEORIES, EFFICIENCY WAGES, EMPLOYEE, EMPLOYMENT, EMPLOYMENT EFFECT, EMPLOYMENT EFFECTS, EMPLOYMENT IMPACT, EMPLOYMENT LEVEL, EQUILIBRIUM WAGES, EXPENDITURES, FEMALE LABOR, FEMALE PARTICIPATION, FIRM LEVEL, FIRM SIZE, FIRM SURVEY, FIRMS, FORMAL SECTOR WORKERS, HIGH WAGES, HOUSEHOLD SURVEY, INCOME, INFORMAL EMPLOYMENT, INFORMAL SECTOR, INSURANCE, INTEREST RATES, JOB CREATION, JOB GAINS, JOB LOSSES, JOB TURNOVER, JOBS, LABOR ECONOMICS, LABOR FORCE, LABOR MARKET, LABOR MARKET CONDITION, LABOR MARKET CONDITIONS, LABOR MOVEMENTS, LABOR PRODUCTIVITY, LABOR RELATIONS, LABOR STANDARDS, LABOR SUPPLY, LABOUR, LABOUR MARKET, LEVELS OF EDUCATION, LITERATURE, MALE WORKERS, MANPOWER, MANUFACTURING INDUSTRIES, MANUFACTURING INDUSTRY, MINIMUM WAGE, MINIMUM WAGE HIKE, MINIMUM WAGE HIKES, MINIMUM WAGE LAW, MINIMUM WAGES, MONOPSONY, MONOPSONY POWER, MULTINATIONALS, MULTIPLIER EFFECT, NOMINAL WAGES, OCCUPATION, ON-THE-JOB TRAINING, OPEN ACCESS, PAID WORKERS, PAPERS, PREVIOUS RESULTS, PREVIOUS STUDIES, PRIMARY EDUCATION, PRIMARY SCHOOL, PRIMARY SCHOOL EDUCATION, PRIMARY_EDUCATION, PRODUCTION PROCESS, PRODUCTION WAGES, PRODUCTION WORKER, PRODUCTION WORKERS, PRODUCTIVITY LEVELS, REAL WAGE, RESEARCHERS, SERVICE SECTOR, SKILL LEVELS, SKILLED WORKERS, SMALL FIRMS, SOCIAL POLICIES, TERTIARY ENROLLMENT, TERTIARY ENROLLMENT RATE, TOTAL WAGE, UNEMPLOYED, UNEMPLOYMENT, UNPAID WORKERS, WAGE BILL, WAGE DATA, WAGE DISTRIBUTION, WAGE EFFECT, WAGE GAP, WAGE GROWTH, WAGE INCREASE, WAGE INCREASES, WAGE INEQUALITY, WAGE LEVEL, WAGE LEVELS, WAGE POLICIES, WAGE POLICY, WAGE RATE, WAGE RATES, WOMEN WORKERS, WORKER PRODUCTIVITY, WORKERS, YOUNG WORKERS,
Online Access:	http://documents.worldbank.org/curated/en/2012/07/16534664/minimum-wage-affect-employment-evidence-manufacturing-sector-indonesia https://hdl.handle.net/10986/12000
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