This study attempts to find out the influence of trade liberalisation on wage inequality in Indonesia. A two-stage estimation approach is used. Using the national labour force survey dataset, the study estimates industry wage premium and industryspecific skill premium in the first stage conditional on individual worker characteristics. In the second stage, the study regresses industry wage premium and industry-specific skill premium on tariff as a measure of trade liberalisation, respectively. It is concluded that trade liberalisation significantly contributes to increasing wage inequality. This contribution occurred through changes in industry wage premium but not industryspecific skill premium.
- Industry-specific skill premium
- Trade liberalisation
- Wage inequality
- Wage premium