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ABSTRACT The minimum wage in Indonesia is set to raise the living standards of workers and the safety net, which aims to protect low-wages workers. The debate regarding the impact of minimum wage on poverty is still a debatable issue. Supporters argue the minimum wage rules regarding minimum wages can improve the economic conditions of low-wage workers, so as to contribute to the reduction of poverty of workers affected by this rule. On the other hand, the minimum wage may lead to rigidity in the labor market and lower competitiveness. Wage rigidity caused by the minimum wage can slow job creation and in turn contribute to unemployment and poverty. Using panel data of 33 provinces in 2006-2014, this study will estimate the impact of minimum wage on poverty. Analysis with random effect model result that every increase of 1% (ceteris paribus) minimum wage will reduce poverty by 5.7%, so that the minimum wage may be used as one of the policies to alleviate poverty in Indonesia.
Kurniawati et al. (Sun,) studied this question.