Employment as the Missing Link: Full Mediation of Minimum Wage Effect on Per Capita Income in Central Java
DOI:
https://doi.org/10.15408/sjie.v14i2.46419Keywords:
per capita income, minimum wage, government expenditure, education, employmentAbstract
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.
JEL Classification: E24, H52, J31, O15
How to Cite:
Pratista, R., Istiqomah., & Pravitasari, C. F. (2025). Employment as the Missing Link: Full Mediation of Minimum Wage Effect on per Capita Income in Central Java. Signifikan: Jurnal Ilmu Ekonomi, 14(2), 437-448. https://doi.org/10.15408/sjie.v14i2.46419.
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