The impact of unemployment and labor force on poverty: Does economic growth play a role?

Abstract

This study investigates the direct and indirect effects of unemployment and labor force participation on poverty and economic growth in Aceh Province, Indonesia, from 2013 to 2022. Employing time series data and utilizing path analysis, the research reveals nuanced relationships among the variables. The findings indicate that unemployment directly exerts a negative but insignificant influence on economic growth, whereas labor force participation has a positive and significant direct impact on economic growth. Furthermore, unemployment demonstrates a positive and significant direct effect on poverty, while labor force participation has a negative and significant direct effect on poverty. Economic growth, however, shows a negative but insignificant direct effect on poverty. Indirectly, unemployment significantly exacerbates poverty through its effect on economic growth, whereas labor force participation indirectly reduces poverty through economic growth, albeit insignificantly. These findings underscore the complex interplay between unemployment, labor dynamics, economic growth, and poverty, offering valuable insights for policymakers aiming to alleviate poverty in the region.