Proceedings of 32nd International Business Research Conference
23 - 25 November, 2015, Rendezvous Hotel, Melbourne, Australia, ISBN: 978-1-922069-89-4
The Impact of the Minimum Wage in Indonesia Labor
Market
Ida Budiarty Djafar *
The minimum wage policy has become an important policy to improve the wages of
workers in the formal sector. In fact, as like other developing countries, Indonesia has
a dual economy is the formal and informal sectors. Minimum wage growth in
Indonesia has increased rapidly during the years 2007-2010, especially outside Java.
Whereas the density of the industry outside Java is relatively low compared to Java.
The purpose of this paper is 1) to determine the minimum wage policy significantly
increase the wages of formal sector workers who receive low wages and 2) to
analyze whether the increase in the wage is gives spillover to wages of informal
sector workers. This study was conducted in 33 provinces in Indonesia. The data
used in this study is a data panel of the National Labor Force Survey (Sakernas)
between 2008-2010. Panel data used to estimate polynomial functions. The
estimation results indicate that the level of wages of formal sector workers are low
wage increases. In addition, the results found no spillover income for informal sector
workers and the number of informal workers decreased, especially for women
workers in the informal sector outside Java. The results could be a consideration for
decision makers in determining minimum wages for Java and outside Java.
Field of Research: Economics, Economic Development and Policy.
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* Dr. Ida Budiarty Djafar, Department of Economic and Development, Lampung University, Indonesia,
Address: Jalan Rya Cudu, Perum KOPRI Blok A7 No. 18, Bandar Lampung, Indonesia.
Email: budiarty_ida@yahoo.com.