Does the minimum wage affect employment ? evidence from the manufacturing sector in Indonesia

Ximena Del Carpio (), Ha Nguyen and Liang Wang
Authors registered in the RePEc Author Service: Nguyen Phu Ha () and Ha Nguyen

No 6147, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Labor Markets; Labor Policies; Microfinance; Corporate Social Responsibility; Tertiary Education (search for similar items in EconPapers)
Date: 2012-07-01
New Economics Papers: this item is included in nep-dev, nep-lab, nep-lma and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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