Do Minimum Wages Improve Child Health?

Early life environmental conditions play a critical role in well-being over the life-course. Most studies of these roles have treated extreme shocks, such as famines, as natural experiments to study the causal impact of early life conditions. However, little attention is paid to the potential of labor market institutions, specifically income protection legislation, in shaping opportunities for investing in early life health and the subsequent impact on early life health outcomes.

We study minimum wages around the time of birth and their effects on child stunting in Indonesia up to 5 years after birth. Indonesia is interesting not only because it carries the fifth highest burden of stunted children in the world, but also because minimum wages are an integral part of their social policy debate where worker protests are a regular occurrence.

To the extent that minimum wages influence parental wage income, they might affect parental investments in child health. For example, if wages were to increase, families might be more likely to avail themselves of health services and engage in other salutary behaviors which may be particularly effective around the time of birth. However, mothers may also be more likely to spend more time in the labor market at the expense of care-giving activities. The time around birth is widely understood to be a critical period in shaping child nutrition and stunting levels, so that changes in parental economic conditions around the time of births may have particularly large effects on child health and nutrition.

Using variation in annual fluctuations in real minimum wages in different provinces of Indonesia, we find that children exposed to increases in minimum wages in the year of birth have higher height-for-age (HAZ) scores in the first five years of their lives. Furthermore, we use data on parental wages to focus on children of parents for whom the minimum wage is most likely to be binding- those whose parents are in the bottom 25th and 50th quantiles of the wage distribution. Parents in upper tails of the wage distribution are considered as part of a placebo sample. Our estimated impacts are evident with difference-in-difference models with province and year-of-birth fixed effects and are robust to inclusion of biological sibling fixed effects, measures of child characteristics (age, gender) and parental characteristics (such as employment status, age and educational attainment, household income and assets) as well as community covariates (provincial GDP and unemployment rates). The effects are prominent particularly among children whose fathers earn in the bottom of the wage distribution, where as no effects are found for fathers earnings in the top part of the wage distribution (placebo). We also use multiple sources of consumer prices indices (CPI) (provincial and national) to explore robustness to different measures of real minimum wages. Our results are consistent with recent work from Indonesia based on “big push” models where increases in minimum wages lead to a movement away from an equilibrium of low wages and low labor demand to an equilibrium with high demand and high wages.