West Java Faces Persistent Labor Market Pressure
Unemployment remains a major economic and social concern because people without jobs represent not only lost income but also unused productive capacity. The Open Unemployment Rate measures the share of the labor force that has not been absorbed into employment.
According to the article, Indonesia's Open Unemployment Rate fell from 6.49 percent in 2021 to 4.91 percent in 2024. West Java, however, continued to experience substantially higher unemployment, with its rate reaching 6.75 percent in 2024. The situation highlights the difficulty of matching the growing labor force with sufficient employment opportunities.
The researchers note that several factors can shape this balance. More people entering the labor market can increase competition for jobs if employment does not grow fast enough. At the same time, improvements in education, health, and living standards can strengthen workers' skills and employability. Wage policies can also influence companies' hiring decisions, while population growth can increase pressure on the labor market.
Data From 27 Regencies and Cities
Rochmah and Rachmawati used a quantitative research design based on secondary data from the West Java Provincial Central Statistics Agency (BPS) and the Open Data Jabar platform.
The dataset covered all 27 regencies and cities in West Java from 2019 through 2024. The researchers compared changes across regions and over time to examine how labor force participation, the Human Development Index (HDI), minimum wages, and population size were related to unemployment.
The data were analyzed using panel regression with EViews 12. Statistical model tests led the researchers to select a Fixed Effects Model, which accounts for differences among individual regions while examining changes over time.
The researchers also reported that the model passed their tests for multicollinearity and heteroscedasticity, supporting the statistical analysis used to examine the four factors.
Higher Labor Force Participation Linked to Lower Unemployment
One of the clearest findings concerns labor force participation.
The study found a significant negative relationship between the Labor Force Participation Rate and the Open Unemployment Rate. The estimated coefficient was -0.15, meaning that a 1 percent increase in labor force participation was associated with a 0.15 percent decrease in the Open Unemployment Rate within the study's model.
The pattern is also visible in West Java's labor market data. Labor force participation increased from 64.99 percent in 2019 to 67.71 percent in 2024, while the Open Unemployment Rate fell from 8.04 percent to 6.75 percent. The number of employed people also increased by approximately 0.91 million in 2024.
For Rochmah and Rachmawati of Universitas Negeri Surabaya, the result suggests that greater participation can help reduce unemployment when the economy is capable of creating enough jobs to absorb additional workers.
Better Human Development Associated With Lower TPT
The Human Development Index was another significant factor. The study found a negative relationship between HDI and unemployment, with an estimated coefficient of -1.81.
Within the model, a 1 percent increase in HDI was associated with a 1.81 percent decrease in the Open Unemployment Rate. The researchers connect this relationship with improvements in education, health, living standards, workforce skills, and employability.
West Java's development indicators provide additional context. HDI rose from 72.03 in 2019 to 74.43 in 2024, while the Open Unemployment Rate declined from 8.04 percent to 6.75 percent. The number of employed people increased from 23.50 million in 2023 to 24.42 million in 2024.
The researchers therefore emphasize the importance of improving human capital through education, health, and better living conditions as part of efforts to reduce unemployment.
Minimum Wage Shows the Opposite Relationship
Minimum wages produced a contrasting result. The study found a positive and statistically significant relationship between minimum wages and the Open Unemployment Rate.
The coefficient for the logarithm of the minimum wage was 19.55. In the model used by the researchers, a 1 percent increase in the minimum wage was associated with a 19.55 percent increase in the Open Unemployment Rate.
The researchers explain that higher minimum wages can increase labor costs for companies. When wage increases are not accompanied by sufficient productivity gains or stronger labor demand, businesses may become more cautious about hiring.
Average minimum wages in West Java increased from Rp1.67 million in 2019 to Rp2.06 million in 2024. Despite the decline in unemployment after the COVID-19 pandemic, West Java remained the province with the highest Open Unemployment Rate in 2024.
The finding does not imply that minimum wages should simply be reduced. Instead, Rochmah and Rachmawati recommend that wage policy consider worker productivity, regional economic conditions, and companies' capacity to absorb labor.
Population Growth Was Not a Significant Factor
Population size showed a negative but statistically insignificant relationship with unemployment. Its coefficient was -1.51, but its probability value of 0.64 meant that the relationship did not meet the study's significance threshold.
West Java's population grew from 48.68 million in 2019 to 50.35 million in 2024, while unemployment declined during the same period. The researchers argue that population growth does not automatically create higher unemployment when economic activity and employment opportunities expand alongside the population.
Four Factors Explain 83 Percent of Unemployment Variation
Taken together, the four variables had a statistically significant relationship with West Java's Open Unemployment Rate. The model produced an F-statistic of 22.86 with a probability value below the 5 percent significance threshold.
More notably, the model's R-squared was 0.83, meaning that 83 percent of the variation in the Open Unemployment Rate within the analyzed data could be explained by labor force participation, HDI, minimum wage, and population. The remaining 17 percent was associated with factors outside the model.
For policymakers, the findings point toward a combined approach rather than a single solution. The researchers recommend expanding employment opportunities, strengthening vocational training, improving cooperation between educational institutions and industry, and designing wage policies that account for productivity and regional economic capacity.
Author Profile
Aziza Siva’Ur Rochmah is the lead author and an Economics researcher affiliated with the Faculty of Economics and Business, Universitas Negeri Surabaya (Unesa). She conducted the study with Lucky Rachmawati from the same university. The research focuses on labor market conditions and the economic factors associated with unemployment in West Java. The article acknowledges Lucky Rachmawati's guidance and constructive feedback during manuscript preparation.
0 Komentar