The Effect of Human Capital on Workers' Income in Western and Eastern Regions of Indonesia

This study examines the effect of human capital (HC) on three median (quintile) income, namely the low median income category (Q1 = 0.25), middle median income (Q2 = 0.5) and high median income (Q3 = 0, 75). for Indonesian workers in the west and east regions. Total respondents for this study were 51,210 workers, consisting of employers, workers and casual workers. All respondent data were recorded in the National Labor Force Survey (SAKERNAS) in 2016. The HC variables in this study were years of schooling, certified training, length of work and age. This study also discusses the interaction effect between (1) vocational education background and length of study, (2) participation in certified training and length of study (3) experience and participation in certified training. This study applies the Mincer model with quantitative regression analysis to break the effect of HC at a certain level of income. The results showed that the length of study had a positive and significant effect on the income of workers in both regions, especially for western Indonesia who graduated or continued their education at vocational schools. Meanwhile, workers in the eastern region who participated in certified training had a more significant influence on their income. It was also found that lower length of work reduced the effect of training participation especially for eastern workers. It is interesting that these results can be fully observed for workers with lower incomes. Therefore, the specific implications of this research must be developed, especially programs for vocational education and legal protection of workers’ careers to maintain optimal labor market outcomes in Indonesia.