Minimum wage and women's decision making power within households

The importance of empowering women has been recognized as a key development goal by major development institutes such as the World Bank. In this paper, we are interested in the role of broad labor market policies on female empowerment in developing countries. Specifically, we study empirically the effect of minimum wages in Indonesia on women's role in decision making in the household. Despite the well-established theory of the household that predicts that the labor market environment is a key factor in household decision making, there is little empirical work that investigates this link in developing countries for broadly implemented policies such as the minimum wage.

Using province-specific minimum wage increases in Indonesia from the Indonesian Central Bureau of Statistics (BPS) and data on Indonesian individuals and households from the Indonesian Family Life Survey (IFLS) from 1997-2014, we implement a method that exploits differences in minimum wages between geographically proximate districts located near the border between separate provinces. Our main regression analysis is based on the difference in spatial difference (DSD). We also used a household fixed effects regression model.

We find a positive and significant effect of minimum wage on the wife's role in making decisions related to household production. On the other hand, we find a negative and significant effect for decisions relating only to resource allocation. We reconcile these findings by first showing that minimum wage has a positive and significant effect on labor force participation for men but a negative effect for women. These findings contrast with other research showing that higher minimum wages reduce the gender wage gap. Our results indicate that in some dimensions, higher minimum wages may not benefit women, and thus the overall welfare effect is ambiguous. We argue that these findings are consistent, however, with existing theories of the household.