The Impact of minimum wage policy on wages and employment in developing countries : the case of Indonesia

Abstract

For more about the East-West Center, see http://www.eastwestcenter.org/Since the late 1980s, minimum wages have become an important plank of the Indonesian government's labour policy. Minimum wages have increased faster than average wages and GDP. As a result, minimum wages have become binding for the majority of workers. This study finds that minimum wages have a positive but statistically insignificant impact on average wages. On the other hand, minimum wages have a negative and statistically significant impact on employment. In particular, the disemployment impact is greatest for women, youth, and less educated workers. However, the employment prospects of white-collar workers are enhanced by increases in minimum wages