The Heterogeneous Effects of a Minimum Wage Policy on Hours Worked and Real Wages in Indonesia

Lestari Agusalim (), Hermanto Siregar (), Lukytawati Anggraeni () and Sri Mulatsih ()
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Lestari Agusalim: Department of Development Economics, Trilogi University, Jakarta, Indonesia; Doctoral Student in the Department of Economics, IPB University, Indonesia
Hermanto Siregar: Department of Economics, IPB University, Bogor, Indonesia
Lukytawati Anggraeni: Department of Economics, IPB University, Bogor, Indonesia
Sri Mulatsih: Department of Economics, IPB University, Bogor, Indonesia

Economic Research Guardian, 2025, vol. 15, issue 1, 88-115

Abstract: This research investigates the heterogeneous effects of the minimum wage policy on hours worked and real wages among low-wage workers in Indonesia. By employing repeated cross-sectional data from the National Labor Force Survey spanning 2020 to 2023, a fully flexible difference in differences (DID) method indicates that the policy resulted in a decrease in average hours worked within the treatment group, while simultaneously increasing real wages. The results demonstrate heterogeneous effects based on economic sector, gender, and region. Across sectors, the impact on hours worked and real wages varies across sectors. Among the 17 sectors analyzed, 8 sectors exhibited significant effects and satisfied the common trend assumption. The analysis by gender shows that women were more prone to experiencing a decrease in hours worked, while men gained more from the rise in real wages. Regionally, the impact of the policy varied between urban and rural workers and evolved over time, reflecting local dynamics in policy acceptance. A robustness test confirmed the consistency and statistical significance of these findings across all model specifications, even with changes in the wage thresholds used to define the treatment and control groups.

Keywords: Fully flexible DID; Hours worked; Low-wage worker; Minimum wage; Real wages (search for similar items in EconPapers)
JEL-codes: E24 J08 J22 J23 J42 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:wei:journl:v:15:y:2025:i:1:p:88-115

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