Does Industry Affiliation Influence Wages? Evidence from Indonesia and the Asian Financial Crisis

World Development, Vol. 51, pp. 47-61, 2013

40 Pages Posted: 16 Aug 2011 Last revised: 30 Jul 2015

See all articles by Aashish Mehta

Aashish Mehta

University of California, Santa Barbara

Sun Wei

University of California, Santa Barbara - Department of Economics

Date Written: November 15, 2012

Abstract

We exploit panel data and large, abrupt, and unusual dislocations of Indonesian workers in the wake of the Asian Financial Crisis to investigate the robustness and persistence of inter‐industry wage differentials (IWDs). Unobserved worker characteristics explain 36% of IWDs. IWDs persist through the post‐crisis decade, although, consistent with a rent‐sharing explanation, they shift alongside sectors’ terms of trade in the wake of the crisis. Agriculture pays a wage penalty, and manufacturing offers a statistically significant but small premium. Most IWDs do not seem to be driven by minimum wage laws, worker monitoring costs, the disagreeability of the work, job‐ specific skills, industry‐specific human capital, non‐wage benefits or contracting terms.

Keywords: Inter‐industry wage differential; competitive labor market; Indonesia; financial crisis; employment

JEL Classification: J31, O15, J63

Suggested Citation

Mehta, Aashish Sunil and Wei, Sun, Does Industry Affiliation Influence Wages? Evidence from Indonesia and the Asian Financial Crisis (November 15, 2012). World Development, Vol. 51, pp. 47-61, 2013. Available at SSRN: https://ssrn.com/abstract=1910425 or http://dx.doi.org/10.2139/ssrn.1910425

Aashish Sunil Mehta (Contact Author)

University of California, Santa Barbara ( email )

Santa Barbara, CA 93106
United States

HOME PAGE: http://www.global.ucsb.edu/people/aashish-mehta

Sun Wei

University of California, Santa Barbara - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States

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