The impact of minimum wages on informal and formal labor market outcomes: evidence from Indonesia

Abstract

This paper studies the effects of minimum wages on informal and formal sector wages and employment in Indonesia between 1997 and 2007. Applying fixed-effects methods, the estimates suggest that minimum wages have a significant positive effect on formal sector wages, while there are no spillover effects on informal workers. Regarding employment, we find no statistically significant negative effects of minimum wages on the probability of being formally employed. These findings suggest that employers use adjustment channels other than employment or that effects such as a demand stimulus on a local level outweigh the possible negative employment effects.Jel codes: J08, J46

Minimum wages for domestic workers: impact evaluation of the Indian experience

“…More than 60% of the global employment arise from informal sector (ILO, 2018). The empirical literature on the the impact of minimum wages for this sector in developing countries while 1 See Krueger (1994, 1998); Ashenfelter and Smith (1979); Neumark and Wascher (1995a,b); Bell (1997); Lang and Kahn (1998); Michael et al (1999); Martin (2001); Carneiro (2001); Fajnzylber (2001); Strobl and Walsh (2003); Lemos et al (2004); Machin and Wilson (2004); Neumark et al (2006); Carneiro (2005, 2007); Gindling and Terrell (2007); Dube et al (2007); Ronconi (2008); Lemos (2009); Gindling and Terrell (2009); Dube et al (2010); Almeida and Carneiro (2011); Khamis (2013); Giuliano (2013); Hohberg and Lay (2015); Dolton et al (2015); Broecke et al (2017); Menon and Rodgers (2017).…”

Industrialization and deindustrialization in Indonesia

“…An estimation including the average value of the minimum wage was also carried out. The data for this variable was provided in the work of Hohberg and Lay (). The sign for the minimum wage variable was positive but not statistically significant.…”

Pengaruh Upah Minimum Terhadap Transisi Individu Dalam Pasar Kerja

“…Teori ekonomi neoklasik dalam pasar persaingan sempurna menyebutkan bahwa kenaikan upah akan meningkatkan penawaran tenaga kerja, sebaliknya juga menurunkan permintaan tenaga kerja pada sisi perusahaan yang berakibat pada semakin tingginya pengangguran (Blanchard,2012). Menurut Rebitzer dan Taylor(1995) dalamHohbergdan Lay (2015), jika diurai lebih eksplisit, pertambahan upah minimum dapat menambah lapangan kerja disatu sis iatau menyebabkan pemutusan hubungan kerja(PHK) disisi lain tergantung pada marginal producto flabor (MPL), jika MPL dianggap lebih tinggi daripada pertambahan upah minimum, umumnya tidak menyebabkan PHK. Kemungkinan yang kedua dengan adanya PHK akan mengurangi tenaga kerja dalam pasar kerja, sehingga pengangguran akan meningkat.…”