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This paper investigates the impact of minimum wages on employment and wages in Indonesian manufacturing firms between 1993 and 2006. It shows that within firms, the employment effects of minimum wage hikes is negative. It finds significant, negative employment effects of minimum wages among small firms and for non-production, less-educated and female workers. The paper also finds that minimum wages are more correlated with small firms’ average wages than large firms’, suggesting that minimum wages are more binding in small firms. Jel codes: J08, J16, J20, J31, L60

Do minimum wages affect employment? Evidence from the manufacturing sector in Indonesia