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

Khairul Amri ()

Regional Science Inquiry, 2018, vol. X, issue 3, 163-176

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.

Keywords: Economic growth; regional minimum wages; labor force participation; unemployment and panel vector error correction model (search for similar items in EconPapers)
JEL-codes: J31 O4 R23 (search for similar items in EconPapers)
Date: 2018
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