Panel Data Regression Approach to Identify Factors Affecting Unemployment in East Java Province

Pendekatan Regresi Data Panel untuk Mengidentifikasi Faktor-Faktor yang Mempengaruhi Pengangguran di Provinsi Jawa Timur

Abstract

The Open Unemployment Rate (OOP) in East Java Province is a multidimensional problem influenced by economic and social factors, with significant disparities between districts/cities. This study analyses the effect of Poverty Percentage, Labour Force Participation Rate (TPAK), and Economic Growth on the open unemployment rate using a panel data regression approach to accommodate spatial and temporal heterogeneity. Cross-section (38 districts/cities) and time series (2019-2021) data were analysed through three models: Common Effect Model (CEM), Fixed Effect Model (FEM), and Random Effect Model (REM). The results of statistical tests (Chow, Hausman, and Lagrange Multiplier) show the FEM as the best model with a coefficient of determination of 0.555, explaining 55.5% of the variation in the unemployment rate. The FEM estimation reveals that the Poverty Percentage has a significant positive effect on increasing the unemployment rate, while Economic Growth has a negative impact on reducing the unemployment rate. This finding confirms the need for policies focused on poverty alleviation and increasing economic growth based on regional leading sectors. This study enriches the methodological literature through the application of FEM that controls for region-specific heterogeneity, while providing practical recommendations for policy makers in designing precise unemployment reduction interventions, such as skills training based on industry needs and strengthening labour-intensive programmes.