The Effects of Manufacturing and Trade Sector Performance, Investment, and Minimum Wages on Open Unemployment in Indonesia

Muhammad Ichsan Maulana (Department of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Banda Aceh, Indonesia)
Taufiq C. Dawood (Department of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Banda Aceh, Indonesia)
Muhammad Abrar (Department of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Banda Aceh, Indonesia)

Grimsa Journal of Business and Economics Studies
Vol. 4 No. 1 (2027): January 2027 (In Press)

This study is motivated by the persistently high open unemployment rate (TPT) in Indonesia, which remains a significant labor market challenge despite continuous economic growth. This study examines how sectoral economic performance, investment, minimum wage policies, and demographic factors influence unemployment dynamics across Indonesian provinces. Specifically, this study aims to analyze the effects of Gross Regional Domestic Product (GRDP) and realized investment in the manufacturing and trade sectors, Provincial Minimum Wage (UMP), and population size on the Open Unemployment Rate in Indonesia. This study employs a quantitative approach using secondary panel data covering 34 provinces in Indonesia during the period 2010–2024. The analytical method applied is panel data regression, with the Fixed Effects Model (FEM) selected as the most appropriate estimation model based on model specification tests. The results indicate that all independent variables jointly have a significant effect on the Open Unemployment Rate, with the model explaining 66% of the variation in unemployment levels. Individually, manufacturing sector Gross Regional Domestic Product (GRDP) has a positive and significant effect on the Open Unemployment Rate, whereas realized investment in the manufacturing sector and the Provincial Minimum Wage have negative and significant effects. Meanwhile, trade sector GRDP, realized investment in the trade sector, and population size do not exhibit statistically significant effects. These findings suggest that manufacturing sector performance, manufacturing investment, and minimum wage policies play important roles in shaping unemployment dynamics, although their effects differ in direction. Therefore, employment policies should prioritize labor-absorbing investment, enhance productivity in the manufacturing sector, and ensure that economic growth is accompanied by the creation of quality employment opportunities while maintaining an appropriate balance between wage policies and labor market conditions.