Differences in Returns to Education: An Analysis of Gender In Indonesia

Abstract

This thesis aims to investigate the earnings differential between males and females in Indonesia. This research also seeks to determine whether the female work force obtains extra benefit in terms of wage earnings on the basis of better education, marital status, working experience, residential location and region. The data used in this study come from the 1989, 1999 and 2009 Indonesian National Labour Force Surveys (Sakernas) on households. In order to investigate the gender earnings differential, Oaxaca’s (1973) decomposition method is employed. The result shows that the estimated coefficients of education variables are generally higher for females than for males. These results highlight that the effect of education on earnings increases as educational level advances. The return to university education is higher than all other levels of education, whereas sub-primary education has the lowest rate of return to education for male and female workers. The gender gap decomposition results suggest that favouritism towards men exists in the Indonesian labour market. The discrimination component is quite high, which clearly indicates the existence of discrimination in the Indonesian labour market. The results reveal that the degree of discrimination is still quite significant against females in all regions in Indonesia. Among factors that influence gender wage gap and discrimination in the country, education was found to be more important in influencing the earnings of females than males. The returns from education were relatively higher for females in all regions.