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The Minimum Wage, Exports, and Firm Performance: Evidence from Indonesia

Bin Ni () and Kyosuke Kurita ()
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Bin Ni: Faculty of Business Administration, Toyo University
Kyosuke Kurita: School of Economics, Kwansei Gakuin University

No 171, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This paper examines the interrelationship between changes in the provincial minimum wage, firms' export behavior, and firms' performance in Indonesia. In this regard, we apply two-stage least squares regression analysis to detailed firm-level data of manufacturing enterprises between 2002 and 2014. We find that an increase in the minimum wage is associated with decreases in a firm's employment rate, its probability of exporting, and its overall performance in terms of productivity and markup. We also use the 2012 minimum wage reform in Indonesia to conduct a combined propensity score matching and difference-in-difference analysis to mitigate the potential endogeneity of minimum wage regulation. Our findings are generally robust to alternative estimation methods. Moreover, the findings suggest that Indonesian exports and the country's comparative advantage in international markets are not negligibly affected by higher labor costs through minimum wage growth.

Keywords: minimum wage; firm performance; Indonesia; difference-in-difference (search for similar items in EconPapers)
JEL-codes: F14 F16 L25 J88 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2018-01, Revised 2018-01
New Economics Papers: this item is included in nep-int, nep-lab and nep-sea
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