Regina Pratista, Istiqomah Istiqomah, Chairani Fadhila Pravitasari

Employment as the Missing Link: Full Mediation of Minimum Wage Effect on Per Capita Income in Central Java

Introduction

Employment as the missing link: full mediation of minimum wage effect on per capita income in central java. Research reveals minimum wage's impact on Central Java's per capita income is fully mediated by employment. Effective policy requires job-creation strategies, not just wage increases.

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. 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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