Analysis of Human Capital on Economic Growth and Labor Demand in Indonesia
The effect of human capital on economic growth has been an issue since the existence of endogenous growth theories that include human capital as a factor of production. Likewise with the influence of human capital on labor demand. Different results from the theory are sometimes found, especially in the case of developing countries. Research that using workers' variables by calculating the underemployment rate is still rarely conducted in Indonesia. This study uses labor data in Indonesia at the provincial level from 1996 to 2018. The labor variable used takes into account open unemployment and underemployment rates. Educational variables are used to proxy human capital. Using the simultaneous equation model, we find a significant relationship between human capital factors on economic growth and labor demand. The higher the education level of the workforce, the greater the influence donated on economic growth.