Association for Public Policy Analysis & Management

The gender wage gap is generally accepted as a contributor to bargaining dynamics within the household in both theoretical models of household decision-making and the rhetoric of women’s empowerment. The hypothesized mechanism is by improving a woman’s outside options, which shape the bargaining dynamic. Until recently, however, many empirical studies of bargaining power looked instead to unearned income like cash transfers or assets individually held by the woman as an explanatory factor for bargaining power. One reason for a lack of empirical research is that women’s wages and intrahousehold bargaining power are likely to be endogenous, making causal studies difficult.

Improving women’s position of power in their domestic relationships is a goal in and of itself. Moreover, an increase in bargaining power for women, by definition, implies household decisions reflect more of women’s preferences. Earlier studies show that increased power leads to improvements in health and schooling for children, which are investments with benefits in economic growth and individual welfare. With these potential effects in mind, I would like to explore the avenue of earned income as a determinant of or contributor to bargaining power.

Minimum wage laws enacted at the province level in Indonesia during the 1990s had a meaningfully large effect on closing the gender wage gap for the bottom tenth percentile of households. Relying on longitudinal survey data from the Indonesian Family Life Survey, this paper examines the impact of changes in women’s wages relative to men’s brought about by minimum wage laws on household decision-making. I find that more egalitarian wages improve women’s bargaining power.

The varied potential impacts of a decrease in the gender wage gap are worth investigating. Here I will analyze a change brought about by minimum wage laws, but the specific policies to increase women’s wages relative to men’s may be context-specific. In some cases, blind hiring or fixed wages based on position titles could lead to more egalitarian wages. And in some cases, minimum wage laws may disproportionately push women out of protected jobs and into the informal sector or unemployment. These issues are avenues for future research, and I will discuss some of the factors which may have contributed to this particular policy with this particular impact.