Jejak Vol 13 (2) (2020): 292-306 DOI: https://doi.org/10.15294/jejak.v13i2.23398 JEJAK Journal of Economics and Policy http://journal.unnes.ac.id/nju/index.php/jejak The Impact of GRDP and RWP on Regional Minimum Wage Robert Tua Siregar1 , 2Hery pandapotan Silitonga, 3Khairunnisah Lubis, 4Acai Sudirman 1,2,4Management Department, Sekolah Tinggi Ilmu Ekonomi Sultan Agung, Pematangsiantar 3Governance Sience Department, Medan Area University, Medan Permalink/DOI: https://doi.org/10.15294/jejak.v13i2.23398 Received: May 2020; Accepted: July 2020; Published: September 2020 Abstract The purpose of this research was to find out the effect of the percentage in development of Pematangsiantar city’s regional minimum wages, and the problem in this study how GRDP and RWP affect on the percentage of development of Regionl Minimum Wage at Pematangsiantar City. The method used was quantitative descriptive analysis. Data analysis used were Classic Assumption Test, Multiple Linear Regression, Correlation Coefficient, Determination, F-test and t-test object on RMW at Pematangsiantar city. Finding of research and results of the study can be summarized as follows: 1). The results of the multiple linear regression analysis test are that the GRDP and RWP had a positive effect on the RMW of Pematangsiantar City, 2). The results of the correlation coefficient indicate that the GRDP and RWP of Pematangsiantar City on its RMW were at a very strong level, while the coefficient of determination of 67.5% at high or low of the minimum wages can be explained by the GRDP and RWP, while the remaining of 32.5% was influenced by other factors which were not included in this study, 3). Hypothesis Test for F- test indicates that the GRDP and RWP influences significantly on Pematang city’s RMW, and for the t- test indicates that the GRDP and RWP had a positive and significant effect on the RMW in Pematangsiantar City from 2005 to 2018. This means that as the GRDP increases, the value of setting Pematangsiantar City's minimum wage in the following year will also increase, and vice versa. The increase of laborers/workers demands will affect the standard of regioanalwages that will be determined, this happens because wages will always adjust to the labor market demand. The stipulation of the minimum wage, it has an impact on GRDP in Pematangsiantar City, because the consumptive rate will be carried out in the place where it gets paid. Key words : Gross Regional Domestic Product, Rate of Workforce Participation, Regional Minimum Wage How to Cite: Siregar, R., Silitonga, H., Lubis, K., & Sudirman, A. (2020). The Impact of GRDP and RWP on Regional Minimum Wage. JEJAK: Jurnal Ekonomi dan Kebijakan, 13(2). doi:https://doi.org/10.15294/jejak.v13i2.23398 Corresponding author : Acai Sudirman p-ISSN 1979-715X Address: St.Surabaya, No. 19 Pematangsiantar E-mail: [email protected] e-ISSN 2460-5123 293 Siregar, S.T, et al, The Impact of GRDP and RWP on Regional Minimum Wage a high minimum wage means that populations INTRODUCTION in that city or regency have a high standard of National development is a process in living and consumption (Hasbi & Dahri, 2019). improving the standard of living of the Per capita income is the size of the average Indonesian people by following the income of a population in a country. It is objectives stated in the Preamble to the obtained from the distribution of national Constitution of the Republic of Indonesia. income of a country and the country’s Principally, the purpose of development is to population. It also reflects GDP per capita. overcome or get out of the problems that Besides, it is often used as a measure of a have been faced by a nation, so that the country’s prosperity and development level; the standard of living of the nation increases. greater the income per capita, the more One way to improve the standard of living of prosperous the country (Hasbi & Dahri, 2019). the nation is to prosper the community. Income Distribution is the spread of Public welfare is a condition in which the earnings within the community. In the process material, spiritual, and social needs of the of production, the owners of the factors of country’s population are fulfilled to live production will receive a reward equal to the properly and be able to develop themselves, factor of production contributed to the so they can carry out social and economic production process. In this income distribution activities. In Indonesia, the public welfare process, there will occur a cycle (turnover) of can be illustrated by the poverty rate. consumers who have to pay the price of goods. Poverty is a condition where the community However, at other times, they will be a provider cannot meet the basic needs of life. Poverty of capital, labor, natural resources, or expertise occurs not because of the will of the poor, factors so that they will receive a share of but because of circumstances that cannot be income at a certain time, and they will pay the avoided by its power. Poverty is a disease in price of goods at other times (Kalalo, et al., the economy, so it must be overcome or at 2016). Income Distribution is a measure used to least reduced. The problem of poverty is see how much of the national income is indeed a complex and multidimensional received by the community. Based on this problem. Therefore, efforts to reduce poverty calculation, a portion of the national income must be carried out comprehensively, cover controlled by a percentage of the population various aspects of community life, and be can be seen. The purpose is to see how much implemented in an integrated manner control of the national income has so that it can (Yusnedi, et al., 2019). be known whether there is national income by Economic growth and income per only a few people or there is an even capita are the most important indicators to distribution among the population in the measure the success of the development of country. (Siradjuddin, 2012). an area/region. Each country will strive to Imbalance is still a crucial issue achieve optimal economic growth. In many concerning with employment condition in countries in the world, the main requirement Indonesia where the growth of labor/work force for the realization of poverty reduction is keeps increasing from year to year while at the economic growth. The minimum wage is an same time its demand is not in line with the indicator of income per capita. A low number of job availability. Moreover, the minimum wage means that populations in increasing of population growth is another the region have a low standard of living and factor that contributes this condition to happen consumption, while a city or regency that has causing many more people unemployment. On JEJAK Journal of Economics and Policy Vol 13 (2) (2020): 292-306 294 the other hand, wage issues and welfare in keep the company running and to produce employmentship appear the major and very profit for them. dominating problems as the source of Indonesia is an agrarian country where conflict between labor/worker and employer the population employment is more dominated since long time ago. Wage is closely related by the agricultural sector, so that the economy to the aspect of individual economy or is more supported by this sector. However, in income and as far as the employment issues recent years, in some countries, particularly in arise within its various dimensions and developing countries such as Indonesia, variables it is always connected with wage. structural changes have occurred, in which Additionally, wage issue is not only a there is a transition from traditional agricultural fundamental problem in Indonesian but also societies to modern industrial economies. The in other countries as claimed by Reich, dominant sector in the economy was initially Allegretto & Goddy, (2017); Fairris & Bujanda the agricultural sector. But, with this structural (2008); Mayneris, Poncet, & Zhang (2014); change, the dominant sector in terms of Allegretto & Reich (2018); Otten et al. (2017); employment is the industrial sector because this Luce (2012); Dreier (2014); Waehning (2015); sector requires more workers in carrying out its Stephenson (2015). production activities. Labor problems will arise Since wages become a reference to if the number of workers offered is higher than improve the welfare of workers or the existing employment in each business labor/worker’s life; therefore, wages must be sector. In other words, the existing employment sufficient to fulfill and support the fair needs is unable to accommodate (employ) the existing of the workers’ life and their families. The workers, especially the untrained and fairness or appropriateness of wages can be uneducated workers. This problem will cause seen and measured by looking at the increasing unemployment rates and poverty adequacy of labors/ workers in fulfilling and rates, which will have an impact on the supporting their basic needs for decent living economic development process. The high (see Rao & Min, 2018; S. A. Allegretto & population growth rate absolutely results in the McMahon, 2006). In fact, workers (laborers), population to increase and gives impacts on the employers, the government and the number of workers to increase. Therefore, the community; however, have the same faster growth of the working-age population in interests concerning with policy of waging the labor market must be balanced with the system. In the perspective of companies, on expansion of employment (Muslihatinningsih & the first hand, wages are considered as one Karlina, 2019). component of production costs which might It is said that workers (laborers) are reduce the rate of company‘s profit. parties who give services to the company which Consequently, companies try making it they are working for and play an important role necessary to reduce wages to the minimum in a production process.