This paper examines the empirical implications of technological changes for skill demand and wage inequality in Indonesia. According to the National Labor Force Survey of Indonesia, the share of educated workers and wage skill premium increased significantly over [2003][2004][2005][2006][2007][2008][2009] for overall industry and across the region. An analysis based on demand-supply framework suggests that demand shifts favoring skilled workers during the period. The decomposition of labor demand shifts shows that they were driven not only by reallocation of labor forces between industries but also by change within industries, particularly among formal workers, suggesting evidence of skill-biased technological changes. The empirical evidence from the data of manufacturing firms suggest that diffusion of new technologies through imported materials and foreign direct investment caused greater demand for skilled labor and higher wage inequality in the manufacturing sector. The views expressed in this paper are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.By making any designation of or reference to a particular territory or geographic area, or by using the term "country" in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. Note: In this publication, "$" refers to US dollars.The ADB Economics Working Paper Series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia's development and policy challenges; strengthen analytical rigor and quality of ADB's country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness.