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Pratista, Regina
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Economics, Econometrics & Finance

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Employment as the Missing Link: Full Mediation of Minimum Wage Effect on Per Capita Income in Central Java Pratista, Regina; Istiqomah, Istiqomah; Pravitasari, Chairani Fadhila
Signifikan: Jurnal Ilmu Ekonomi Vol. 14 No. 2 (2025): Forthcoming Issue
Publisher : Faculty of Economic and Business, Universitas Islam Negeri Syarif Hidayatullah

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.15408/sjie.v14i2.46419

Abstract

Research Originality: This paper is original by explicitly analyzing employment as a mediating variable in the relationship between minimum wage and per capita income, given the inconclusive findings of previous research on these variables. Research Objectives: This study investigates the relationship between minimum wage and per capita income and examines the mediating role of employment with two control variables: government expenditure and education. Research Methods: This study utilized secondary data from BPS covering 35 districts and municipalities in Central Java Province over the period 2018–2023. The study applies panel-data regression, complemented by mediation analysis using path analysis and the Sobel test. Empirical Results: The minimum wage does not directly affect per capita income; instead, its impact is fully mediated by employment. The finding suggests that the minimum wage alone does not raise per capita income; rather, it exerts its influence indirectly by improving employment, which in turn drives income growth. As control variables, government expenditure and education exert positive and significant effects on per capita income. Implications: A minimum wage policy must be accompanied by job-creation strategies. A minimum wage increase without policies that maintain or increase jobs will not effectively boost per capita income.
Co-Authors Chairani Fadhila Pravitasari istiqomah istiqomah