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THE MACROECONOMIC IMPACT OF REGIONAL MINIMUM WAGEs: A CROSS-PROVINCE DATA EVIDENCE FROM INDONESIA

Author

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  • Khairul AMRI

    (Ph.D Student in Economic Science, Faculty of Economic and Business Syiah Kuala University Banda Aceh, Indonesia, Lecture in Faculty of Islamic Economics and Business, State Islamic University Ar-Raniry, Banda Aceh Indonesia)

Abstract

The main purpose of our study is to determine the causality relationship between economic growth, regional minimum wages (RMWs), unemployment rate and labor force participation rate (LFP). Using cross-section data set of 27 provinces from Indonesia for the period of 2003-2015, data analyzed using panel co-integration test, panel vector error correction model, and Granger causality test. Panel co-integration test indicates that there is a long-run relationship between the variables. In the long-run, LFP positively related to the economic growth, and negatively related to RMWs. The unemployment is positively related to both the economic growth and RMWs. In the short-run, RMWS has a significant and positive effect on economic growth. The unemployment and LFP have a negative and significant effect on RMWs. LFP has a negative and significant effect on unemployment and RMWs has a positive and significant effect on LFP. Furthermore, economic growth has a negative and significant effect on LFP. The result of Granger causality test points out that there is a bidirectional causality relationship between economic growth and RMWs and between RMWs and LFP. In addition, unemployment rate causes RMWs, and LFP causes unemployment.

Suggested Citation

  • Khairul AMRI, 2018. "THE MACROECONOMIC IMPACT OF REGIONAL MINIMUM WAGEs: A CROSS-PROVINCE DATA EVIDENCE FROM INDONESIA," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(3), pages 163-176, December.
    • Handle: RePEc:hrs:journl:v:x:y:2018:i:3:p:163-176
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    File URL: http://www.rsijournal.eu/ARTICLES/December_2018/12.pdf
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    Cited by:

    1. Dinara B. KALYBEKOVA & Galiya N. SANSYZBAYEVA & Madina O. KOISHYBAEVA & Tolkyn OSPANBEK & Aitolkyn B. KULMAGANBETOVA, 2021. "Digital Economy Within The Eurasian Economic Union: Current State And Development Prospects," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(1), pages 31-48, June.
    2. Olga OVCHARENKO & Viktoriia SMIESOVA & Maryna IVANOVA & Nataliia KOVTUN & Liliya ZOLOTUKHINA, 2021. "Economic Security Management At The Meso-Level: Methodological And Legal Approach," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(1), pages 201-216, June.
    3. Marek Piotrowski & Paweł Huras & Katarzyna Modrzejewska, 2021. "Determinants of the human capital redistribution. What pushes out and what pulls to the regions of Masovian Voivodship," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 9(2), pages 50-64, December.

    More about this item

    Keywords

    Economic growth; regional minimum wages; labor force participation; unemployment and panel vector error correction model;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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