Minimum wage differentials and commuting across districts

Abstract

This study examined the effect of cross-district minimum wage differentials on workers’ commuting probabilities in the pre-pandemic era of the Greater Jakarta Metropolitan Area (Jabodetabek). We found that minimum wages in cross-border districts, along with differentials between home and neighboring district minimum wages, significantly affect worker commuting probabilities. These findings highlighted important methodological considerations when analyzing labor survey data, as such data typically reflect workers’ residential locations rather than their employment sites. Furthermore, labor market policies implemented within specific jurisdictional boundaries may generate spillover effects into neighboring labor markets, particularly in regions characterized by high mobility. Overall, the evidence indicated that in an integrated urban region like Jabodetabek, statutory minimum-wage differences that arise directly from district administrative boundaries partly shape formal workers’ commuting behavior, implying that these jurisdictional divisions and the cross-district wage incentives they create should be taken into account in minimum-wage policy design and evaluation.