Minimum Wages and Changing Wage Inequality in Indonesia

Publication | March 2010

This paper investigates the extent to which minimum wage laws in Indonesia may have contributed to the decrease in wage inequality by looking at changes in individual wages, hours of work, and employment between 1993 and 2007.

This paper examines whether minimum wages are an effective policy tool for mitigating wage inequality in Indonesia. The authors find that minimum wages are a significant determinant of increases in monthly wages for the population below the minimum wage line in the formal sector, but not for workers below the minimum wage line in the informal sector. However, there are several adverse effects: (i) people in formal and informal sectors who have wages approximately at the minimum wage line work significantly more hours per week; and (ii) there are significant losses in formal sector employment for individuals throughout much of the wage distribution.


  • Abstract
  • Introduction
  • Related Literature
  • Indonesia's Minimum Wage Laws
  • Data
  • Descriptives of Indonesian Wages and Minimum Wages
  • Methods and Results
  • Robustness Checks
  • Conclusion
  • References

Additional Details

  • Economics
  • Poverty
  • Social protection
  • Indonesia
  • WPS101559
  • 1655-5252 (Print)

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