Minimum wages and poverty in a developing country: simulations from Indonesia's household survey

Vol: 
2005/09
Author name: 
Kelly Bird
Chris Manning
Year: 
2005
Month: 
August
Abstract: 

This study focuses on the efficiency of minimum wage policy for poverty reduction, taking Indonesia as a case study. A simulation approach assesses who benefits and who pays for minimum wage increases. On the benefits side, the rise in minimum wages boosts incomes in households with low wage workers. However, increases in wage costs are passed on through higher consumer prices. As a result, three out of four poor households lose in net terms, even when we assume no job losses. The findings suggest that minimum wages are unlikely to be an effective antipoverty instrument, at least for Indonesia.

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