The Effect of Minimum Wages on Indonesia's Unemployment Rate

Abstract

The main problem currently is faced by the government is the large number of workforce which continues to increase every year. Meanwhile, the available job opportunities (demand) are not able to absorb the amount of labor on offer (supply). Based on data from the Central Statistics Agency (BPS), the number of unemployed for the August 2020 period increased by 2.67 million people. Thus, the number of unemployed labor force in Indonesia will be 9.77 million people. This research uses descriptive and quantitative approaches. The analysis technique used is multiple linear regression, using time series data for 2003-2018. Variables are used in this study to find factors that affect unemployment. The open unemployment rate variable is used as the dependent variable while the independent variable is the minimum wage. Based on the output of processing results, the minimum wage variable for workers has the greatest effect on reducing the open unemployment rate. The variable coefficient of minimum wage for workers is -2,934 with the assumption that the other variables are constant (ceteris paribus).