Technological Change, Skill Demand, and Wage Inequality in Indonesia

40 Pages Posted: 6 Apr 2013

See all articles by Jong-Wha Lee

Jong-Wha Lee

Korea University

Dainn Wie

National Graduate Institute for Policy Studies

Date Written: March 1, 2013

Abstract

This paper examines the empirical implications of technological changes for skill demand and wage inequality in Indonesia. According to the National Labor Force Survey of Indonesia, the share of educated workers and wage skill premium increased significantly over 2003-2009 for overall industry and across the region. An analysis based on demand-supply framework suggests that demand shifts favoring skilled workers during the period. The decomposition of labor demand shifts shows that they were driven not only by reallocation of labor forces between industries but also by change within industries, particularly among formal workers, suggesting evidence of skill-biased technological changes. The empirical evidence from the data of manufacturing firms suggest that diffusion of new technologies through imported materials and foreign direct investment caused greater demand for skilled labor and higher wage inequality in the manufacturing sector.

Keywords: skill-biased technological change, human capital, wage inequality

JEL Classification: J24, J31, O15, O33

Suggested Citation

Lee, Jong-Wha and Wie, Dainn, Technological Change, Skill Demand, and Wage Inequality in Indonesia (March 1, 2013). Asian Development Bank Economics Working Paper Series No. 340. Available at SSRN: https://ssrn.com/abstract=2245380 or http://dx.doi.org/10.2139/ssrn.2245380

Jong-Wha Lee (Contact Author)

Korea University ( email )

Anam-dong, Sungbuk-Ku
Dept. of Economics
Seoul, 136-701
82-2-3290-2216 (Phone)
82-2-928-4948 (Fax)

Dainn Wie

National Graduate Institute for Policy Studies ( email )

7-22-1 Roppongi, Minato-ku
Tokyo, Tokyo 106-8677
Japan

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