Growing inequality has become an important policy issue over the past decade, both internationally and in Indonesia. One of the features of the current widening of the income distribution in a number of countries has been the rising earnings from employment at the top end of the distribution.

The aim of this seminar is to present some preliminary results on the relationship between the skill differential (defined in various ways) and wage inequality using provincial level data in Indonesia. Our data show that regions with high skill premium tend to have more unequal wages distribution.

Our empirical estimations show that sharply rising tertiary qualifications of job seekers have contributed to wage inequality and this was observed in most regions. The estimations also show that the skill differentials for both male and female workers have explained widen inequality. The significant contribution of skill premium between those with tertiary degree and primary school education or lower among female workers on inequality is observed.

However, regardless of gender, the earnings differentials within skilled labour with tertiary degree and secondary high school diploma is significant in explaining widen inequality.