Welfare Implications of Output-Based Pay among Vulnerable Workers in Indonesia
Abstract
Payment by output rather than by time has expanded in Indonesia as a source of income amid limited formal job creation. This study asks whether workers paid solely by output or service fee report different earnings from wage-employed workers, and which groups show the largest differentials. Using Sakernas August 2024, we compare workers paid purely by output with workers paid a cash wage, applying regression models with interaction terms and subsample comparisons, with standard errors clustered by regency. Output-paid workers report earnings about 28.4 per cent lower on average and 31.8 per cent lower at first job than comparable wage-employed workers. The estimate is negative and significant in all twenty-three specifications examined, including survey-weighted estimation, alternative fixed effects, trimmed samples and every subsample defined by earnings quintile, location, age, gender and education. The clearest heterogeneity is by gender: estimated separately, women face a differential of -0.4539*** against -0.2814*** for men, and gaps are larger in urban than in rural areas. The findings point to targeting wage floors and social security registration at output-paid workers in urban areas and in female-dominated occupations.