Analysis of Wage Inequality in Indonesia

KUSUMANINGSIH, NUGRAHENI,

2014 | Tesis | S2 Economics

Wage inequality has been an issue particularly in developing countries such as Indonesia. The growth at the top of earnings distribution is higher compared to the growth in lower earnings distribution. The employment in public sector and larger firms are considered tightening the gap of wage inequality by giving wage premium to those at the lower earnings distribution. By using fixed effect regression, I discovered that the rate of return to education is 5.4 percent, working in public sector giving 14 percent wage premium, 13.6 percent wage premium of working in large firm and 7.2 percent premium of working in medium size firm compared to small size firm. I also use quantile regression to examine the effect of working in public sector and larger size firms from all level of earnings distribution and the result is in line with previous studies that the lower quantiles will benefit more compared to those at the higher quantiles. These effects particularly higher and stronger for female workers compared to male.

Kata Kunci : wage ineguality, developing countries, earnings distribution