OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- Forthcoming titles
- ISSN : 18151973 (en ligne)
- https://doi.org/10.1787/18151973
How Does Decentralised Minimum-Wage Setting Affect Unemployment and Informality?
The Case of Indonesia
The Indonesian labour market is characterised by widespread informality. To some extent, these outcomes
can be attributed to a sharp increase in the real value of the minimum wage since 2001, when
minimum-wage setting was decentralised to the provincial governments. To test this hypothesis, this paper
uses survey data on the labour market (Sakernas), household income and expenditure (Susenas) and the
industrial sector (Survei Industri) to construct a district-level dataset spanning the period 1996 to 2004. The
effects of changes in the minimum wage on unemployment, formal-sector employment and the incidence
of informality in urban areas are estimated separately by fixed effects and jointly by a seemingly unrelated
regression (SUR) estimator. Our findings show that an increase in the minimum-to-mean wage ratio is
associated with a net increase in employment: a rise in informal-sector employment more than
compensates for job losses in the formal sector. This Working Paper relates to the 2008 OECD Economic
Assessment of Indonesia (www.oecd.org/eco/surveys/indonesia).
Mots-clés: informality, minimum wage, employment, unemployment, Indonesia
JEL:
J64: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers / Unemployment: Models, Duration, Incidence, and Job Search;
J23: Labor and Demographic Economics / Demand and Supply of Labor / Labor Demand;
J31: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Wage Level and Structure; Wage Differentials
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