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Research Article | Open Access
Volume 8 | Issue 6 | Year 2021 | Article Id. IJEMS-V8I6P106 | DOI : https://doi.org/10.14445/23939125/IJEMS-V8I6P106

Analysis of the Effect of Covered and Uncovered Sector Minimum Wage Policies on Sumatra Island

Raizky Rienaldy Pramasha, Ida Budiarty, Lies Maria Hamzah

Citation :

Raizky Rienaldy Pramasha, Ida Budiarty, Lies Maria Hamzah, "Analysis of the Effect of Covered and Uncovered Sector Minimum Wage Policies on Sumatra Island," International Journal of Economics and Management Studies, vol. 8, no. 6, pp. 43-47, 2021. Crossref, https://doi.org/10.14445/23939125/IJEMS-V8I6P106

Abstract

Changes in the minimum wage have benefited some workers but harmed others, namely workers who are vulnerable to changes in labor market conditions, such as female workers, young people and those with low education. The purpose of the study was to determine the magnitude of the effect of the minimum wage, level of education, and age of workers in the covered sector and uncovered sector in rural and urban areas. The research method uses the type of data used is time series data during 2017-2019 and cross section data covering 10 provinces on the island of Sumatra. The variables used are real wages, education level, age, location of residence, Covered sector workers, Uncovered sector workers, and unemployment. The results of the study show that workers with real wages below the minimum wage, with an older age, low education level and living in rural areas are more likely to have the greatest impact. As explained above, the increase in the minimum wage displaces some formal sector workers from shifting to the informal sector, while maintaining income to survive. Workers in the informal sector usually do not get permanent job security, health insurance, and provisions for old age. Workers in the uncovered sector have higher household consumption expenditures than workers in the covered sector. An increase in the workforce in the uncovered sector will cause other problems because the capacity to absorb labor is not limited. The impact that can be caused by this relocation is expected to reduce the income of the uncovered sector workforce. Workers who are looking for work/unemployment will feel the impact caused by an increase in the minimum wage.

Keywords

minimum wage, covered sector, unvocered sector, Sumatra Island

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