Abstract
This chapter econometrically investigates the determinants of real wage, productivity and employment in the manufacturing sector by firm size and factor intensity. This exercise is important to identify policy instruments in order to influence their trends at various levels to achieve the desired objective of guiding the economy towards a high-wage and high-productivity trajectory and to address socio-economic deprivation such as working poverty and earnings inequality. The chapter begins with an examination of wage and productivity functions, followed by employment functions. The chapter finds that the modern and dynamic LM section of manufacturing industry displays an ideal outcome where wages and employment increase when the overall economy (gross domestic product) expands. This finding across firm size and factor intensity should affirm the call for re-industrialisation to reverse the trend of premature de-industrialisation since the 1997–1998 Asian financial crisis.
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Detailed results are available from authors.
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This magnitude is roughly similar to the elasticity of wage with respect to productivity in the case of China’s state-owned manufacturing firms (Zhang and Liu 2013).
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This confirms Marxian labour aristocracy hypothesis.
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Detailed regression results and related Suest test are available from authors.
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While it would be interesting to identify the role of technology on wage and productivity, the survey design does not have specific and consistent information on this matter across the survey periods. However, it is necessary to note that micro and small manufacturing firm survey in 2009 and 2010 includes questions on the use of computer and internet, which can be used as a proxy for technology. Unfortunately, these questions are no longer available in the rest of the survey. We ran a separate regression for 2010 that included these questions, in addition to the robustness check regression using 2010 data since the year accounts for the bulk of the total observation.
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See Appendix 5.2 on the detail on how the pseudo panel is constructed.
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That is, elasticity of employment with respect to output. Technically, it should be called output elasticity, but it is commonly referred to as employment elasticity in the literature.
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The use of GDP deflator is more appropriate than the alternative of using consumer price index (CPI) to maintain consistency with (real) productivity data.
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All regressions pass both the Sargan test of overidentifying restrictions and the Arellano-Bond test of serial correlation, both of which are important in GMM estimation.
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In South Africa, Klein (2012) finds that the negative effect of real wages on employment is due to “excess” real wages, which refers to a situation where real wage growth far exceeds productivity growth. Excess real wages could be seen as the opposite of delinking between wage and productivity; both are unfavourable conditions. The former is not good for the economy, while the latter is unfair for the workers.
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Tadjoeddin, M.Z., Chowdhury, A. (2019). Determinants of Employment, Wage and Productivity. In: Employment and Re-Industrialisation in Post Soeharto Indonesia. Critical Studies of the Asia-Pacific. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-50566-8_5
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