Minimum Wages and Labour Market Outcomes in Decentralized Indonesia: A Case Study from Java Raden Muhamad Purnagunawan ([email protected]) Accepted 2011, Australian National University, Canberra
Using data at the district and individual level, this thesis analyses the impact of minimum wages on three factors: employment and hours worked; commuting and returns to commuting; and the gender earnings gap. The findings are discussed in the context of economic and labour market changes in Indonesia between 2001 and 2007.
In 2001, Indonesia underwent a decentralisation reform that led by the mid-2000s to variations in minimum wages at the district level and a rapid increase in minimum wages. This has created an opportunity for researchers to re-assess the impact of minimum wages across regions.
The study found evidence of a compression of the wage distribution close to the minimum wage level in both the formal and the informal sector. However, minimum wages did not strongly affect total employment in either sector. The regression analysis found only that the employment effect was channelled through a decrease in working hours for workers in the formal sector in urban areas. This suggests that firms and employers in the formal sector in urban areas are more likely to adjust working hours than to dismiss workers in response to minimum wage increases. Another possible effect of changes in minimum wages was found to be a spillover of employment across districts. This probably played a role in dampening the disemployment effect of the increase in minimum wages.
The analysis of commuting between districts by male workers revealed that minimum wages have a significant pull and push effect in attracting and deterring the movement of commuters between districts. The effect was found to be significantly larger for workers in the informal sector than in the formal sector. This may be due to a strong derived demand for workers in the informal sector or to a ‘lighthouse effect’, whereby a higher minimum wage tends to boost expected incomes in the informal sector. Nevertheless, further analysis using individuallevel data revealed that the returns to commuting of informal workers were still lower than the wage premium earned by formal sector workers. Workers in the informal sector generally travel longer distances and have a lower education level than formal sector workers.
The earnings differential between male and female workers was expected to narrow as a result of the implementation of minimum wage regulation. However, there is no significant evidence of a convergence effect related to minimum wages during the period of analysis. The lack of a significant effect of minimum wages in the formal sector is probably due to the fact that formal sector wages are likely to be based on observable productivity-related characteristics such as human capital, job type and location. This is reflected in the relatively large contribution of differences in endowments to the gender earnings gap.
The general conclusion of this study is that the effects of minimum wages are not as large as expected. Mobility of labour across districts and low levels of compliance with minimum wage requirements in general may have dampened the disemployment effect of minimum wages.
© 2011 Raden Muhamad Purnagunawan
Economic Growth in Indonesia: The Driving Forces of the Level and the Growth Rate of Real Per Capita Income: An Econometric Time Series Approach Parjiono ([email protected]) Accepted 2010, James Cook University, Townsville, Queensland
A three-step process was used to discover the determinants of real per capita income in Indonesia for the period 1960–2006, namely: (i) investigating whether the long-run growth characteristic is exogenous or endogenous; (ii) investigating productivity related to growth; and (iii) discovering the driving forces of the level and the growth rate of real per capita income.
The empirical results suggest that:
| • | During the period 1960–2006, Indonesia's long-run growth characteristic was endogenous and thus it could be influenced by appropriate government policy. | ||||
| • | During the same period, Indonesia's technology caught up with the frontier technology of the developed economies of Japan and the US. This process contributed to the acceleration of productivity and to Indonesia's achieving an annual growth rate of about 6%. However, this growth rate is insufficient given that the empirical tests show no evidence of income levels catching up with those of developed countries. | ||||
| • | During the period 1970–2006, Indonesia's real per capita GDP can be linked to capital; labour; exports; the external debt to GDP ratio; the stock of FDI; and population. These results suggest that, in the long run, increases in capital, employment and exports lead to an increase in real per capita GDP, while increases in the external public debt to GDP ratio, the stock of FDI and the population lead to a decrease in real per capita GDP. | ||||
Some policy implications that can be drawn from these empirical results are:
| • | Related to the investigation of whether the long-run growth characteristic is exogenous or endogenous, the government could formulate an active development strategy, because the long-run growth of real per capita GDP can be influenced by appropriate government policy. The government could also promote investment to boost real per capita GDP growth. | ||||
| • | Related to the investigation of productivity related to growth, the government could further develop adoption capacity factors to support the adoption oftechnology to accelerate productivity related to growth. This process could include (i) reducing tariffs on the import of equipment and production machinery; (ii) emphasising human capital development; and (iii) increasing economic performance. | ||||
| • | Related to discovering the forces driving the level and the growth rate of real per capita income, the government could develop policies that directly promote an increase in the level and the growth rate of real per capita GDP. These could include generating capital accumulation; creating new jobs to increase employment; increasing export volumes; being more selective towards foreign direct investment so that it does not crowd out domestic investment; reducing the external public debt to GDP ratio; and reducing the growth rate of the population. | ||||
This thesis offers additional insights into both the impact of government policy on long-run economic growth and the factors that could be modified to increase the growth rate of real per capita GDP in order to improve the welfare of the people of Indonesia.
© 2011 Parjiono
Indonesian Drug Policy and Patent Regulation after the TRIPS Agreement: Better Access to Essential Medicines? Tomi Suryo Utomo ([email protected]) Accepted 2006, University of Washington, Seattle WA
Pharmaceutical patent protection constitutes a serious public health issue for the Indonesian government. It must balance its policy of protecting pharmaceutical patents according to international standards (the TRIPS, or trade-related aspects of intellectual property rights, agreement) with its domestic developmental policy goal of providing cheaper medicines. Unless the government provides sufficient protection for pharmaceutical patents, it faces sanctions from the World Trade Organization for violating the principles of international trade.
On the other hand, Indonesia's need to reduce the cost of medicines is pressing for four reasons. First, the government budget for medications is limited. Second, the rate of generic drug sales is low. Third, the burden of chronic diseases and emerging problems such as HIV/AIDS, is increasing to alarming levels. Fourth, the price of drugs has increased as a result of pharmaceutical patent protection. Present problems are due to the Indonesian government's failure in the past to maximise the use of a number of safeguards included within the TRIPS agreement. This is attributable both to government inaction and to the unclear and flexible nature of those safeguards.
This research examines the impact of patent protection for pharmaceuticals on access to medicines in Indonesia. It focuses on three issues. (1) How do patents affect drug prices? (2) Does patent law affect the introduction of generic drugs? (3) What strategies are recommended so that Indonesia can improve access to medicines?
A literature review was done to gain background information about the TRIPS agreement and how other countries have tried to improve access to essentialmedicines. In Indonesia, information was derived from surveys and interviews with government agencies, pharmaceutical manufacturing officials and government regulatory institutions. Drug checklists were used to record information about patented and non-patented study drugs.
There are several main findings. First, in Indonesian pharmacies the price of patented drugs is 70–90% higher than that of non-branded generics and 10–90% higher than that of branded generics. Second, pharmaceutical patent protection under TRIPS may delay the introduction of generic drugs, an important treatment alternative in industrialised countries. For example, original manufacturers may decline requests for clinical and pre-clinical trial data, a requirement before generic drug companies can start production, or may extend the initial period of patent protection by alleging that there is a new use for the nearly expired product. Third, current Indonesian drug regulations do not make use of the TRIPS safeguards.
Finally, this research acknowledges the importance of factors other than patent law (such as public health policy; drug pricing; distribution systems; and surveillance of prescribing patterns) that affect access to medicines. Although these factors are outside the scope of this research, they illustrate the need to involve a multi-sectoral group of policy makers and stakeholders to improve access to medicines in Indonesia.
The study's overall recommendation is that the Indonesian government should take advantage of TRIPS safeguards such as parallel imports; compulsory licences; Bolar provisions on the use of an invention before its patent expires; and ‘government use’ licensing. These tactics have helped improve drug access in other countries such as India and South Africa. To support the use of safeguards, this thesis offers specific recommendations intended to remove ambiguities in current regulations and to fill gaps in Indonesia's patent legislation.
© 2011 Tomi Suryo Utomo