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The Minimum Wage, Exports, and Firm Performance: Evidence from Indonesia

Author

Listed:
  • Bin Ni

    (Faculty of Business Administration, Toyo University)

  • Kyosuke Kurita

    (School of Economics, Kwansei Gakuin University)

Abstract

This paper examines the interrelationship between changes in the provincial minimum wage, firms' export behavior, and firms' performance in Indonesia. In this regard, we apply two-stage least squares regression analysis to detailed firm-level data of manufacturing enterprises between 2002 and 2014. We find that an increase in the minimum wage is associated with decreases in a firm's employment rate, its probability of exporting, and its overall performance in terms of productivity and markup. We also use the 2012 minimum wage reform in Indonesia to conduct a combined propensity score matching and difference-in-difference analysis to mitigate the potential endogeneity of minimum wage regulation. Our findings are generally robust to alternative estimation methods. Moreover, the findings suggest that Indonesian exports and the country's comparative advantage in international markets are not negligibly affected by higher labor costs through minimum wage growth.

Suggested Citation

  • Bin Ni & Kyosuke Kurita, 2018. "The Minimum Wage, Exports, and Firm Performance: Evidence from Indonesia," Discussion Paper Series 171, School of Economics, Kwansei Gakuin University, revised Jan 2018.
    • Handle: RePEc:kgu:wpaper:171
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    References listed on IDEAS

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    More about this item

    Keywords

    minimum wage; firm performance; Indonesia; difference-in-difference;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy

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