Labor Market Distortion: Analysis of Wage Rigidity and Indolence of labor demand response in South Sulawesi Province

Abstract

The study aimed to analyze labor market distortion based on wage rigidity level and indolence of labor demand response. Both of them were analyzed using error correction model (ECM). The result of the study indicated that, in the spatial, the rural real wage is more rigid then urban, while, in the sectoral base, the real wage rigidity mainly in industrial manufacturing sector. The rural wage rigidity was in line with the imperfect information and the tendency using family labor, cause of market mechanism not exist. While, wage rigidity in the industrial sector was associated with the wage efficiency, the regional minimum wage rate (UMR) and the institutional of union labor had been stronger in the recent years. Furthermore, the labor demand response toward shock of real wage was more indolent in urban area then similar response in rural area. The characteristic of labor recruitment system was generally formal in urban area and therefore the response required longer time to be in place