Impacts of minimum wages on employment and unemployment in Indonesia

Abstract

This study explores the impact of minimum wages on employment in the formal and informal sectors, as well as on unemployment in Indonesia. With the ongoing debate on the employment impact of minimum wages, by using aggregate provincial panel data from 2001 to 2015, we found that in general, a minimum wage increase lowers formal sector employment and informal sector employment. An increase in minimum wages is also estimated to lower unemployment, as labor participation declined. When divided by gender, this study shows that female workers in the 15–24 age groups bear the largest loss due to a minimum wage increase.

Tifani Husna Siregar

Former Assistant Professor, School of Political Science and Economics, Waseda University and Research Assistant, Asian Development Bank Institute

My research interests include topics in labor economics, particularly minimum wages and its impact on labor market outcomes.