Optimization Strategy For The Demographic Dividend In Indonesia 2025-2040: A Labour Market Equilibrium Approach In Indonesia

Rahma Azizah; Ida Budiarty

doi:10.63922/ijebir.v5i04.5544

Rahma Azizah Department of Development Economics, Faculty of Economics and Business, University of Lampung
Ida Budiarty Department of Development Economics, Faculty of Economics and Business, University of Lampung

DOI: https://doi.org/10.63922/ijebir.v5i04.5544

Keywords: demographic dividend; labour market equilibrium; youth labour absorption

Abstract

The demographic dividend is a strategic opportunity for Indonesia to boost economic growth through the dominance of its working-age population. However, this benefit can only be realized if the labour market is able to absorb workers optimally, creating a balance between labour demand and labour supply. This study aims to analyze the effect of the minimum wage, Gross Fixed Capital Formation (GFCF), and the demographic dividend on youth labour absorption as a basis for formulating a strategy to optimize Indonesia's demographic dividend for the 2025–2040 period. The study uses panel data from 34 provinces in Indonesia over the 2015–2024 period sourced from the Central Statistics Agency (BPS). The analysis was conducted using a Dynamic Panel Data approach through the Two-Step System Generalized Method of Moments (SYS-GMM) method to address potential endogeneity and capture the dynamics of labour absorption. The SYS-GMM estimation results show that the one-period lagged minimum wage and the demographic dividend have a positive and significant effect on youth labour absorption, while Gross Fixed Capital Formation (GFCF) has a negative but insignificant effect. These findings indicate that the increase in the working-age population needs to be supported by policies capable of strengthening labour market equilibrium through the creation of productive jobs, improving the quality of human resources, and directing investment more toward job creation so that the demographic dividend can be optimized sustainably.

References

(UNFPA), U. N. P. F. (2024). Population Data. https://indonesia.unfpa.org/en/topics/population-data
Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Carlo Application to Data : Evidence and an Employment Equations. 58(2), 277–297.
Asia, Rama Putri, Silvia Putri Faradilla, Firistya Sabrina Rizqi, Aprillia Nilasari, K. A. (2024). Pengaruh PDRB Dan Usia Produktif Terhadap Penyerapan Tenaga Kerja Era Bonus Demografi. Journal Of Economics, 04, 131–140.
Bloom, D. E., Canning, D., & Sevilla, J. (2003). The Demographic Dividend: A New Perspective on the Economic Consequences of Population Change. RAND Corporation. https://doi.org/10.7249/MR1274
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. 87.
Card, D., & Krueger, A. B. (1993). Minimum Wage And Employment A Case Study Of The Fast Food Industry In New Jersey And Pennsylvania.
Ehrenberg, Ronald G, R. S. S. (2003). Modern Labor Economics: Theory and Public Policy.
George J. Borjas. (2016). Labor Economics.
Hayes, Adrian, D. S. (2015). Taking Advantage of The Demographic Dividend in Indonesia : A Brief Introduction to Theory and Practice.
Maryam, S. (2025). Demographic dividend , economic and employment growth in Indonesia. 8(3), 3365–3372. https://doi.org/10.53894/ijirss.v8i3.7244
Maryati, S., Hefrizal Handra, & Muslim, I. (2021). Penyerapan Tenaga Kerja dan Pertumbuhan Ekonomi Menuju Era Bonus Demografi di Sumatra Barat. Jurnal Ekonomi Dan Pembangunan Indonesia Jurnal Ekonomi Dan Pembangunan Indonesia, 21. https://doi.org/10.21002/jepi.2021.07
Mustika, N., & Khairani, A. (2025). Pengaruh investasi terhadap penyerapan tenaga kerja di indonesia. 6(2), 454–467.
Rhegita Surya Febiaranti, Y. P. U. (2025). Pengaruh Upah Minimum, PDB, Inflasi, Keterbukaan, Investasi dan Pengeluaran Pemerintah Terhadap Penyerapan Tenaga Kerja Di Indonesia Tahun 1995-2023. Journal of Economic, Business and Accounting, 8.
Rini, E. F., & Septriani, S. (2025). IMPACT ANALYSIS OF MINIMUM WAGES , INVESTMENTS AND INFLATION ON LABOR ABSORPTION IN THE MANUFACTURING. 10(1), 11–24. https://doi.org/10.20473/jiet.v10i1.58541
Roodman, D. (2009). How to do xtabond2 : An introduction to difference and system GMM in Stata. The Stata Journal, 1, 86–136.
Sintia Wati, R. J. (2024). THE EFFECT OF INDUSTRIAL SECTOR GROWTH RATE, INVESTMENT AND WAGES ON LABOR ABSORPTION IN INDONESIA. Journal of Malikussaleh Public Economics, 07, 1–11.
Siti Syuhada, Aulia Tasman, H. (2014). Faktor-Faktor Yang Mempengaruhi Penyerapan Tenaga Kerja Pada Usaha Mikro, Kecil dan Menengah (UMKM) di Kota Jambi. Jurnal Perspektif Pembiayaan Dan Pembangunan Daerah, 2(2), 93–98.
Tiara Juliana Jaya, K. (2020). EFFECT OF GROSS DOMESTIC REGIONAL BRUTO , PROVINCIAL MINIMUM WAGE , AND INVESTMENT ON LABOR ABSORPTION. 9(3), 236–249.
Todaro, M. P., & Smith, S. C. (2020). Economic Development. Thirteenth Edition. In Pearson (Issue 13th Edition). https://www.mkm.ee/en/objectives-activities/economic-development
Yusuf, M., Poetiray, G., Purnomo, D., & Utomo, A. W. (2023). Peluang dan tantangan pemanfaatan bonus demografi pada aspek ketenagakerjaan di Kota Salatiga Opportunities and challenges of utilizing the demographic dividend in the employment aspect in Salatiga City. 18(1), 1–14. https://doi.org/10.55981/jki.2023.1387