An Analysis On Inequality, Economic Growth, And Unemployment In Sumatera Island

Abstract

This study analyzed the relationship between inequality, economic growth, unemployment (endogenous variables), and other exogenous variables affecting the relationship. The panel data included 154 cities and regencies in Sumatera Island of Indonesia for ten consecutive years (2011-2020). Data were analyzed using simultaneous equations models for econometrics. Our findings confirmed (1) a negatively correlated, significant, and simultaneous two-way relationship between inequality and growth and (2) a negatively correlated and significant two-way causality between economic growth and unemployment. However, the relationship between inequality and unemployment was not significant. The limitation of the study was that it only used a simultaneous approach using three equations (inequality, growth, and unemployment); hence, other models may be developed using the other endogenous variables. Our findings will be helpful to make better policies to reduce inequality and unemployment and encourage economic growth, especially for the local governments in Sumatera Island.