Devanto Shasta Pratomo
This study examines the effects of changes in the minimum wage on wages across distribution in Indonesia using a provincial panel data set from 1989 to 2003 across 26 provinces. Using a Dynamic Arellano-Bond panel data method, the empirical result indicates that an increase in minimum wage increases average wage of workers in Indonesia. This study also found that there is no significant effect of minimum wage at the bottom of wage distribution suggesting that minimum wage is not effective in helping the lowest part of the wage distribution. The reason is the fact that there is a non-compliance issue with the minimum wage policy in Indonesia, particularly for workers in the lowest part of wage distribution. In addition, the result also suggests the presence of spillover effect, consistent with the view that the main goal of the Indonesian minimum wage seems to be an instrument for raising the standard of living of workers. © EuroJournals, Inc. 2012.
Faculty of Economics and Busines, University of Brawijaya, Malang, Indonesia
