Professional Documents
Culture Documents
Paper Title
Effect of Wage Differential to Unemployment Risk in Indonesia
Abstract
Workers in less-secure jobs are often paid less than identical-looking workers in more
secure jobs. This lack of compensating differentials for unemployment risk can arise in
equilibrium when all workers are identical and firms differ only in job security.
Unemployment becomes persistent for low-wage and unemployed workers, a seeming
pattern of unemployment scarring created entirely by firm heterogeneity. Higher in the
wage distribution, workers can take wage cuts to move to more stable employment.
Key Words: Wage Differential, Economy, Unemployment, Management Risk, Job
Security.
1. Introduction
Indonesia as developing country
still has the same problem as every
developing country in the world,
unemployment. As the global recession
happen, there is an increase in
unemployment rate in Indonesia as it also
happen in every country that caught in the
impact of recession. The aftermath effect
of recession in Indonesia is wage
differential that happen toward same
workers in different firms. Several firms
believe that the worker most likely to
choose jobs with better security rather
than higher wage, which other firms
believe otherwise and thus there are two
arguments toward the idea.
Labor forces in Indonesia often
get lower wage than other labor forces in
1
Established by provincial and district authorities, which vary by province, district, and sector; the
lowest minimum wage was in the province of Central Java at rupiah 910,000 per month and the
highest was in Jakarta at rupiah 2,441,301 per month
2
Report of Development Country Labor Force by World Bank, 2001.
Established by provincial and district authorities, which vary by province, district, and sector; the
lowest minimum wage was in the province of Central Java at rupiah 910,000 per month and the
highest was in Jakarta at rupiah 2,441,301 per month
2
Report of Development Country Labor Force by World Bank, 2001.
A characteristic of Indonesia is
that the unemployment rate is highest for
people between the age of 15 and 24, far
above the country's national average.
Freshly
graduated
students
from
universities, vocational schools and
secondary schools have difficulties
finding their place in the national
workforce.
Almost half of Indonesia's total
number of workers possess a primary
school degree only. The higher the
education degree, the lower its share
towards Indonesia's workforce. In recent
years, however, there is a changing trend
visible: the share of higher education
degree holders rises, while the share of
those that went to primary school only
decreases.
Established by provincial and district authorities, which vary by province, district, and sector; the
lowest minimum wage was in the province of Central Java at rupiah 910,000 per month and the
highest was in Jakarta at rupiah 2,441,301 per month
2
Report of Development Country Labor Force by World Bank, 2001.
Established by provincial and district authorities, which vary by province, district, and sector; the
lowest minimum wage was in the province of Central Java at rupiah 910,000 per month and the
highest was in Jakarta at rupiah 2,441,301 per month
2
Report of Development Country Labor Force by World Bank, 2001.
Established by provincial and district authorities, which vary by province, district, and sector; the
lowest minimum wage was in the province of Central Java at rupiah 910,000 per month and the
highest was in Jakarta at rupiah 2,441,301 per month
2
Report of Development Country Labor Force by World Bank, 2001.
http://www.tradingeconomics.com/indone
sia/unemployment-rate.
http://www.indonesiainvestments.com/finance/macroecono
micindicators/unemployment/item255.
Established by provincial and district authorities, which vary by province, district, and sector; the
lowest minimum wage was in the province of Central Java at rupiah 910,000 per month and the
highest was in Jakarta at rupiah 2,441,301 per month
2
Report of Development Country Labor Force by World Bank, 2001.