Analysis of Unemployment in Indonesia: The Impact of Minimum Wage, Exports, Foreign Direct Investment, and Human Development Index from 1990-2023
DOI:
https://doi.org/10.61132/ijems.v3i1.1114Keywords:
Foreign Direct Investment, Human Development Index, International Trade, Minimum Wage, UnemploymentAbstract
Unemployment is a socio-economic problem that can threaten the stability of Indonesia's economy. This study analyzes the impact of minimum wage, international trade, foreign direct investment, and human development index on the open unemployment rate from 1990 to 2023. Using the Ordinary Least Square (OLS) multiple linear regression method with the Newey-West HAC standard errors approach, the estimation results reveal findings that contradict conventional theory. Minimum wage is proven to have a significant negative effect, confirming the applicability of Efficiency Wage Theory in Indonesia where wage increases can enhance productivity and purchasing power. International trade has a positive but insignificant effect, indicating structural transformation in exports toward capital-intensive sectors. Foreign direct investment has a significant negative effect, demonstrating that increased foreign investment can create new employment opportunities that reduce unemployment rates. The most surprising finding is from the human development index which has a significant positive effect, indicating the phenomenon of educated unemployment due to the mismatch between the education system and labor market needs. This research provides important implications for policymakers to conduct curriculum reform or adjustment of the education system with business or industrial needs, structural transformation in export activities with export institutions, and management of foreign investment to address structural unemployment in Indonesia.
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