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All Journal EKO-REGIONAL JURNAL PENGEMBANGAN EKONOMI WILAYAH Eko-Regional: Jurnal Pembangunan Ekonomi Wilayah Eko-Regional: Jurnal Pembangunan Ekonomi Wilayah
Fadhilah, Mutiara Gita
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Economics, Econometrics & Finance Energy Environmental Science Public Health Social Sciences

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Investigating the Effects of Minimum Wage and Non-Compliance on Formal Employment: Evidence in Java Island Fadhilah, Mutiara Gita; Damayanti, Arie
Eko-Regional: Jurnal Pembangunan Ekonomi Wilayah Vol 19 No 1 (2024): March 2024
Publisher : Faculty of Economics and Business Universitas Jenderal Soedirman

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.32424/er.v19i1.16855

Abstract

There is an ongoing debate in the field of minimum wage literature, with different theories predicting varying impacts on employment. According to neoclassical theory, when the minimum wage increases and becomes binding, employment decreases. However, the monopsony labor market theory predicts that minimum wage can increase employment. Empirical examination in Indonesia has yielded mixed results, depending on the data and empirical model specification. Our study used panel data of regencies/cities in Java Island between 2017 to 2021 period and the fixed effect estimation method. We found that the minimum wage can increase employment in the formal sector, but the effect diminishes as non-compliance increases. This suggests that the benefit of a minimum wage in protecting workers depends on enforcement and that weak enforcement and setting a minimum wage too high may cause more non-compliance, which could harm formal employment.
Investigating the Effects of Minimum Wage and Non-Compliance on Formal Employment: Evidence in Java Island Fadhilah, Mutiara Gita; Damayanti, Arie
Eko-Regional: Jurnal Pembangunan Ekonomi Wilayah Vol 19 No 1 (2024): March 2024
Publisher : Faculty of Economics and Business Universitas Jenderal Soedirman

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.32424/er.v19i1.16855

Abstract

There is an ongoing debate in the field of minimum wage literature, with different theories predicting varying impacts on employment. According to neoclassical theory, when the minimum wage increases and becomes binding, employment decreases. However, the monopsony labor market theory predicts that minimum wage can increase employment. Empirical examination in Indonesia has yielded mixed results, depending on the data and empirical model specification. Our study used panel data of regencies/cities in Java Island between 2017 to 2021 period and the fixed effect estimation method. We found that the minimum wage can increase employment in the formal sector, but the effect diminishes as non-compliance increases. This suggests that the benefit of a minimum wage in protecting workers depends on enforcement and that weak enforcement and setting a minimum wage too high may cause more non-compliance, which could harm formal employment.
Investigating the Effects of Minimum Wage and Non-compliance on Formal Employment: Evidence in Java Island Fadhilah, Mutiara Gita; Damayanti, Arie
EKO-REGIONAL Vol 19 No 1 (2024)
Publisher : Jurusan Ilmu Ekonomi dan Studi Pembangunan Universitas Jenderal Soedirman

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.32424/1.erjpe.2024.19.1.3653

Abstract

There is an ongoing debate in the field of minimum wage literature, with different theories predicting varying impacts on employment. According to neoclassical theory, when the minimum wage increases and becomes binding, employment decreases. However, the monopsony labor market theory predicts that minimum wage can increase employment. Empirical examination in Indonesia has yielded mixed results, depending on the data and empirical model specification. Our study used panel data of regencies/cities in Java Island between 2017 to 2021 period and the fixed effect estimation method. We found that the minimum wage can increase employment in the formal sector, but the effect diminishes as non-compliance increases. This suggests that the benefit of a minimum wage in protecting workers depends on enforcement and that weak enforcement and setting a minimum wage too high may cause more non-compliance, which could harm formal employment. Keywords: Minimum wage, Compliance, Employment
Co-Authors Damayanti, Maria Goreti Arie