means that a 10 percent increase in the minimum wage triggers a job loss of 1.3 percentage points.

In Asia, Indonesia is one of the main developing countries to be the subject of several studies on the implications of the minimum wage for the labor market. The minimum wage was introduced in Indonesia in the 1970s. Since then, the country has set multiple minimum wages, corresponding to each of the provinces (27 levels). In terms of the minimum wage relative to the average wage, Indonesia has one of the highest ratios of all the countries in Southeast Asia, at nearly 0.6 (Del Carpio, Pabon, 2014). The differences in the minimum wage level by province and the sharp rise in the minimum wage during the 1990s made it possible to analyze the potential effects of the minimum wage on the economy.

The results of these analyses are mixed. Based on panel data from the provinces, Rama (2001) found a negative effect for smaller businesses (with elasticities ranging from −0.77 to −1.30) and a positive effect in medium and large enterprises. The existence of monopsonistic power in the medium and large companies actually favored an increase in the demand for workers.

Alatas and Cameron (2008) studied the effect of a minimum wage increase in the area of Botabek between 1990 and 1996 (before the crisis) on the employment of workers engaged in the manufacture of textiles and footwear. The results showed a reduction in the employment of workers in small companies, with elasticities ranging from −0.31 to −0.55, whereas in the large companies the effect was not even statistically significant. Some of the estimates actually showed increases in employment in the large enterprises, which would suggest that employment in the small companies was shifting to the large ones. Furthermore, the large companies appeared to be paying above the minimum wage, so that increases in the minimum wage would not affect employment levels. On the other hand, Harrison and Scorse (2010) found much more modest effects of the minimum wage increase on the textile industry in Indonesia during the 1990s. According to their estimates, a 10 percent increase in the minimum wage for workers in foreign enterprises and export firms in Indonesia would trigger a 1.2 to 1.8 percent reduction in employment, whereas in small companies the effect was insignificant, mainly because of low compliance with the law.

A more recent study on the situation in Indonesia with data from firms for the period 1996‐2003 found moderate effects on employment, with job losses of less than 1 percent following a 10 percent increase in the minimum wage. Minimum wage hikes led to layoffs of less qualified workers, especially those in areas other than production and those in small companies (Del Carpio et al., 2013). This means that, prior to the minimum wage increases, the small companies, which usually engaged in labor‐intensive activities and had little power over the market, were forced to lay off less‐qualified workers to avoid bankruptcy. In Vietnam, it was found that during 2006‐2010 the minimum wage had a negative effect on employment in domestic companies but none in the larger enterprises (Del Carpio, Nguyen, Nguyen and Wang, 2013).

10