EAS Publisher | Do Minimum Wage and Economic Growth Matter for Labor Absorption in Sumatra Island, Indonesia?

Do Minimum Wage and Economic Growth Matter for Labor Absorption in Sumatra Island, Indonesia?

DOI : https://doi.org/10.36349/EASJEBM.2020.v03i01.007

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The purpose of this study is to explore the short- and long-run influences of the provincial minimum wage and economic growth and labor absorption in 10 provinces of Sumatra, Indonesia over the period 2008-2017. Using the panel regression of the Auto-Regressive Distributed Lag (ARDL) model, the study documented that, in the long-run, the provincial minimum wage has a positive and significant effect on labor absorption in the Sumatra region, while the economic growth has an insignificant effect on labor absorption. Meanwhile, in the short-run, the provincial minimum wage has a negative and significant effect on labor absorption and economic growth has an insignificant positive influence on labor absorption. Thus, to enhance labor absorption and reduce the unemployment rate, the government should regulate a proper and just provincial minimum wage policy.

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