Minimum Wage Policy and Its Impact on Employment in the Urban Formal Sector

Policy Research

Since the late 1980s, minimum wages have become an important plank of the Indonesian government's labour policy. Their levels have increased faster in real terms than those of average wages and per capita gross domestic product and, as a result, minimum wages have become binding for the majority of formal sector workers. This study finds that the imposition of minimum wages has a negative and statistically significant impact on employment in the urban formal sector. The disemployment impact is greatest for female, young and less educated workers, while the employment prospects of white-collar workers are enhanced by increases in minimum wages. Some workers who lose jobs in the formal sector and have to relocate to the informal sector face lower earnings and poorer working conditions.

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Asep Suryahadi
Wenefrida Dwi Widyanti
Daniel Suryadarma
Sudarno Sumarto
Wenefrida Dwi Widyanti
Daniel Suryadarma
Research Area 
minimum wages
labor policy
formal sector
Publication Type 
Journal Article