Minimum Wages and Labour-Intensive Industry: Experience from Indonesia

Padang Wicaksono (), Muhammad Fadhil Firjatullah, Aditya Harin Nugroho () and Priyanto
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Padang Wicaksono: University of Indonesia
Muhammad Fadhil Firjatullah: University of Indonesia
Aditya Harin Nugroho: University of Indonesia
Priyanto: University of Indonesia

The Indian Journal of Labour Economics, 2025, vol. 68, issue 1, No 6, 119-140

Abstract: Abstract There has been a long-standing debate about the effectiveness of minimum wages as a social welfare policy for labour. To continue this discussion, this study aims to compare the effects of minimum wage policy towards the employment rate and average worker’s wage in Indonesia’s labour-intensive and capital-intensive industries. By using panel data from Indonesia Annual Manufacturing Survey for the years 2011–2015, this study found that an increase in the regional minimum wage has a positive relationship with the employment rate in labour-intensive yet not in capital-intensive industries. Moreover, this study also shows the existence of a positive relationship between the minimum wage level and the average worker’s wage in labour-intensive industries. On the contrary, in capital-intensive industries, an increase in the minimum wage level significantly diminishes worker’s average wages.

Keywords: Minimum wages; Labour-intensive; Capital-intensive; Employment; Wages (search for similar items in EconPapers)
JEL-codes: J21 J23 J31 J38 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s41027-025-00563-3

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