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The Impact of Minimum Wage Policy on Wages and Employment in Developing Countries: The Case of Indonesia

by Asep Suryahdi, Wenefrida Widyanti, Daniel Perwira, and Sudarno Sumarto

East-West Center Working Papers, Economics Series, No. 38

Publisher: Honolulu: East-West Center
Publication Date: December 2001
Binding: paper
Pages: 39
Free Download: PDF

 


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.