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The Impact of Minimum Wage, Economic Growth, and Unemployment on Poverty Levels in Sumatera

Introduction

The impact of minimum wage, economic growth, and unemployment on poverty levels in sumatera. Examines minimum wage, economic growth, and unemployment's impact on poverty in Sumatra. Minimum wage significantly reduces poverty; economic growth shows no effect. Recommends targeted unemployment policies.

Abstract

This study analyzes the effect of minimum wage, economic growth, and unemployment rate on the poverty rate in Sumatra Island, Indonesia. The data used is panel data from 10 provinces in Sumatra during the period 2016-2023.The analysis was conducted using the Random Effects Model (REM) method with EViews 12 software. The findings indicate that the minimum wage variable exerts a significant negative influence on the poverty rate, while economic growth demonstrates no substantial effect. Conversely, the unemployment rate exhibits a significant negative impact on poverty.These observations align with the principles of the Wage Efficiency theory and the Social Security Theory, underscoring the significance of augmenting the minimum wage and implementing policies to manage unemployment in efforts to alleviate poverty. However, it is important to note that national economic growth has not been sufficient to meaningfully address the issue of poverty, underscoring the necessity for a more targeted strategy that focuses on enhancing accessibility to education, healthcare, and economic opportunities for disadvantaged populations.

Review

This study investigates the critical relationships between minimum wage, economic growth, and unemployment rates on poverty levels across 10 provinces in Sumatra from 2016-2023. Employing a Random Effects Model, the research yields several compelling, though at times perplexing, findings. The observation that minimum wage significantly reduces poverty is a strong and policy-relevant result, aligning with the Wage Efficiency theory and suggesting a direct pathway for poverty alleviation. Furthermore, the nuanced conclusion that national economic growth has not sufficiently addressed poverty, thus necessitating targeted strategies, adds valuable depth to the policy discourse. The study's focus on a specific and relevant region using recent panel data positions it as a potentially impactful contribution to understanding poverty dynamics in Indonesia. However, a significant concern arises from the reported finding that the unemployment rate exhibits a "significant negative impact on poverty." This result is highly counter-intuitive and contradicts the vast majority of economic literature, where higher unemployment is typically associated with increased poverty due to lost income and reduced economic opportunities. This particular finding demands rigorous re-examination, detailed explanation, and robust theoretical justification within the context of the study's data and methodology. If the finding is indeed correct, the authors must thoroughly elaborate on the underlying mechanisms and potential unique factors in Sumatra that could lead to such an inverse relationship, possibly exploring alternative measures of poverty or specific social safety nets not fully captured. The abstract's mention of "Social Security Theory" as alignment for this finding also needs clearer elucidation, as its connection to unemployment *decreasing* poverty is not immediately apparent. To enhance the paper's credibility and impact, the authors should prioritize clarifying the counter-intuitive unemployment finding. This might involve re-running analyses, exploring alternative model specifications (e.g., Fixed Effects, if appropriate, and comparing results), or considering omitted variable bias. Further, for the "no substantial effect" of economic growth, it would be beneficial to specify if this implies statistical insignificance or practical insignificance despite some statistical presence. The policy recommendations could also be strengthened by providing more specific examples of "targeted strategies" for education, healthcare, and economic opportunities tailored to the Sumatran context. Despite the critical points, the study addresses a vital issue and has the potential to offer meaningful insights, provided these methodological and interpretational ambiguities are thoroughly addressed.

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