Impact of minimum wage legislation on poverty reduction in Indonesia

SHOLICHIN, Ahmat, Prof. Takashi Wakiyama

2008 | Tesis | S2 Magister Ekonomika Pembangunan

Having been implemented for many decades in a number of countries, both industrial and developing, the legislation for minimum wages (MW) has been a subject of active debate. Especially controversial has been its impact on workers’ welfare, particularly its contribution to poverty reduction. Aiming to examine MW’s contribution to poverty reduction, this paper therefore solely relies on Indonesia’s official statistics, mainly SAKERNAS, as they appear to provide straightforward hard evidence. The major findings are: (a) Because the level of MW is modest, it is unlikely that it has caused unemployment. (b) Being regular employees, only less than 30 % of all workers are legally subject to the MW legislation. In this sense, MW’s impact appears limited. (c) The non-compliance ratio is still around 30 %, though some studies claim increased compliance in recent years. (d) Though many workers are underemployed, most of them are non-regular employees to whom MW is not applicable anyway. (e) Since we can presume that MW’s impact is most critical on heads of households, its impact is further reduced as the number of heads of households is well below the number of regular employees. (f) Just 10 % point raise in the compliance ratio, which does not seem intolerable at least to large/medium manufacturers, would enable a considerable number of families to clear the poverty line. In brief, MW is applicable to the limited number of workers but its impact on poverty reduction would be substantial should it be complied with more extensively. ned oil extraction rate and certain forecasted costs. Thereby an equiva lent position can be taken in WTI forward contracts of matching matur ity. Subsequently, resulted cas h flows are discounted by a risk-free rate in which U.S. government bond is commonly used by considering that all cash flows are now known. Performing a real option valuation requi res a projection of the stochastic process followed by the underlying asset. As stochastic processes are not differentiable, we can define the instantane ous value change of any contingent claim by applying Ito.s Lemma equation. The equation gives the price f ( S, δ , τ ) of a crude oil derivative as a function of two variables. The present value of cash flows from the oilfield is obtained through a certainty e quivalent (CEQ) approach. Taking a position in two derivatives and the oilfield derives the partial differential equation (P.D.E.) satisfied by to the value of the oilfield. A closed form analytical solution to the P.D.E. for describing the value of the oilfie ld do not exist, therefore the P.D.E. is solved numerically. The nume rical method used is an explicit finite difference method. Based on data obtained since May 30 th 2008, Real Option Valuation method gave an EMP of Malacca oilfield with a value 5,649 billion U.S. $.

Kata Kunci : Upah minimum,Legislatif,Kemiskinan