The Consequences of Doubling the Minimum Wage: The Case of Indonesia

Indonesian minimum wages were tripled in nominal terms, and doubled in real terms, in the first half of the 1990s. The author analyzes data from the 1993 labor force survey to evaluate the effects of this hike on wage earnings and wage employment. The results suggest that the minimum wage hike had a modest impact on Indonesian labor market outcomes, increasing average wages by 5–15% and decreasing urban wage employment by 0–5%. The employment effects, however, varied substantially by firm size: small firms apparently experienced substantial decreases in employment, whereas some large firms actually saw their employment increase. Workers in those large firms, the author concludes, are the evident winners from the minimum wage hike.