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The e-Newsletter of the Gender Network April 2014 | Vol. 8, No.1



The Gender Wage Gap in Indonesia - Inclusive or Exclusive Growth?
By Kiyoshi Taniguchi
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Gender Wae Gap in !ndonesia

The gender wage gap is a ubiquitous phenomenon in both developed and developing
countries. The gender wage gap is defined as the difference between male and female
earnings expressed as a percentage of male earnings. This article attempts to identify the
possible causes of the gender wage gap in Indonesia. Utilizing the 200 labor force survey
!"urvei #ng$atan %er&a 'asional ("a$ernas)*
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, we analyze the nature of gender based wage
differentials in Indonesia. -ased on the available facts and literature, we began with the
following hypotheses on the gender wage gap.

. The gender wage gap exists in Indonesia, as the gap is pervasive throughout the
globe. /omen tend to earn less than men0
2. The gender wage gap is narrower in urban areas than rural areas, as the labor
mar$et is denser and more efficient0 and
+. "ocioeconomic factors such as marital status and educational attainment are
significant determinants of the gender wage gap. These factors are more pronounced
determinants in urban areas than rural areas because urban areas tend to place
greater weight on the income dimensions of livelihood.

/e analyze the monthly total wage, which is ad&usted by the general price levels in different
geographical locations. In addition, the gender wage gap is controlled by some
socioeconomic variables li$e the number of hours wor$ed, marital status, the number of
children, educational attainment, the wor$ type !e.g., professional or administrative* and
industry category !e.g., agriculture or manufacturing*. In order to control the selection bias
for labor mar$et participation !e.g., some female wor$ers decide not to wor$ due to family
reasons*, we apply the 1ec$man2s two3step model.

4stimated gender wage gaps are further decomposed into two different components by the
-linder35axaca decomposition method. The -linder35axaca decomposition separates the
wage differentials from explained to unexplained variations. 4xplained variations can be
wage differences based on socioeconomic characteristics li$e educational attainment, while
unexplained variations can be derived from systemic gender discrimination. 5nce the
-linder35axaca decomposition is conducted, we multiply the gender wage gap by the share
of purported gender discrimination, which represents the gender wage gap attributable to
gender discrimination.




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Senior Economist, Private Sector Operations Department, Asian Development Bank (ADB). E-mail: ktaniguci!a"#.org
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%is polic& #rie' is #ase" on te "ra't (orking paper entitle" )%e *en"er +age *ap in ,n"onesia - ,nclusive or E.clusive
*ro(t/0 #& 1. %aniguci (ADB) an" A. %u(o (+orl" Bank).
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Sakernas is compile" #& te ,n"onesian 3entral Bureau o' Statistics (Ba"an Pusat Statistik 4BPS5).
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The "#piri$al %es&lts

The results are shown in Ta'le 1. #fter applying the 1ec$man2s two3step model, the overall
gender wage gap in Indonesia in 200 turns out to be +0.6 percent, i.e., the female
wor$er2s monthly real wage is +0.6 percent lower than the male wor$er2s wage. In the
urban areas, the gender wage gap is +.7 percent, while the gap is 28.8 percent in the rural
areas. The higher gender wage gap in the urban areas is somewhat surprising, but there is
an explanation in the conclusion.

The -linder35axaca decomposition indicates that the vast ma&ority of the gender wage gap
is derived from gender discrimination !i.e., 8+.+ percent for overall, 69.7 percent for the
urban areas, and 8:.9 percent for the rural areas*. The gender wage gap attributable to
discrimination for overall is 26.9 percent, which means that female wor$ers receive 26.9
percent less than male wor$ers due to gender discrimination. The rest of the wage gap !i.e.,
2. percent* is explained by non3discriminatory factors li$e hours wor$ed or educational
attainment by female wor$ers. The gender wage gap attributable for gender discrimination
is 29.: percent for the urban areas and 26.8 percent in the rural areas.

Ta'le 1. Gender Wae Gap Attri'&ta'le to (is$ri#ination

;ender /age ;ap
;ender
<iscrimination
;ender /age ;ap
attributable to
<iscrimination
5verall +0.6= 8+.+= 26.9=
Urban +.7= 69.7= 29.:=
>ural 28.8= 8:.9= 26.8=
Source: Sakernas 2010, calculation by the authors.

)on$l&sions

The gender wage gap prevails in developed as well as developing countries. /e scrutinized
the Indonesian labor force survey to analyze the possible causes of the gender wage gap.

-ased on analytical results, we can respond to hypotheses we set up in the brief.

The ender wae ap e*ists in !ndonesia+ results from the 1ec$man2s two3step
model consistently indicate that the gender wage gap exists in Indonesia. /omen do
receive lower wages than men conditional on socioeconomic characteristics in both
urban and rural areas.

The Gender wae ap is wider in &r'an areas. ?ontrary to our initial
hypothesis, the gender wage gap is wider in urban areas, i.e., the gap between what
male wor$ers receive and female wor$ers receive conditional on various
socioeconomic variables is wider in urban areas. 1owever, the gender discrimination
component of the gender wage gap !i.e., unexplained portion of the wage
differentials* is larger in rural areas than urban areas. This might imply that the labor
mar$et is more efficient in urban areas than in rural areas.

,o$ioe$ono#i$ $hara$teristi$s are the ke- deter#inants for the ender
wae ap. The -linder35axaca decomposition reveals that the critical determinant
of the gender wage gap is gender discrimination, not socioeconomic characteristics.
4ducational attainment, the number of children below 0 years old, and marital
status are all significant when one decides to enter the labor mar$et. -oth, hours
wor$ed and years of experience at the current position, significantly determine
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monthly wage levels. 1owever, the wage gap is predominantly determined by gender
discrimination.

The stri$ing fact is that the vast ma&ority of the wage differential comes from gender
discrimination !Ta'le 1*. ;ender discrimination is some latent factor which cannot be
explained by variables including educational attainment, types of wor$, and hours of wor$.
;iven a fairly exhaustive list of control variables, it is unli$ely that a missing !latent*
variable affects gender discrimination. 1ence, we can conclude that ender dis$ri#ination
is the #a.or $a&se of the ender wae ap. This implies that the Indonesian labor
mar$et is still inefficient0 female wor$ers do not receive their marginal contribution
compared to their male counterpart. 1owever, this is not an Indonesian issue only0 the
gender wage gap exists everywhere.

/e propose that governments implement and enforce equal pay legislation for male and
female wor$ers. -oth male and female wor$ers should receive equal wages given
comparable credentials and contributions. In particular, the government should at least,
immediately, address the gender wage gap and implement equal pay legislation in the
public sector. It is neither fair nor efficient that the equally qualified female wor$ers receive
the lower wages than male wor$ers. #n efficient labor mar$et is the first solid step for
sustainable and equitable economic growth in long run.


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%e vie(s e.presse" in tis paper are te vie(s o' te autors an" "o not necessaril& re'lect te vie(s or policies o' te Asian Development
Bank (ADB), or its Boar" o' *overnors, or te governments te& represent. ADB "oes not guarantee te accurac& o' te "ata inclu"e" in tis
paper an" accepts no responsi#ilit& 'or an& conse6uence o' teir use. %e countries liste" in tis paper "o not impl& an& vie( on ADB7s part as
to sovereignt& or in"epen"ent status or necessaril& con'orm to ADB7s terminolog&.