Abstract:
The achievement of social welfare as the ultimate goal of development requires the creation of basic conditions, namely: 1) sustainable economic growth; 2) the creation of a strong economic sector; and 3) an inclusive and equitable economic development (Bappenas, 2010). The social welfare are expected to be achieved if the economy continues to grow that in turn will create more job opportunities and absorb more labor at fair wages.This study aims to examine and analyze the effect of wages on labor absorption and social welfare at province in Indonesia. The study period was five years i.e. from 2006 to 2010 by using secondary data provided by Central Bureau of Statistics in the form of combination between times series data (from 2006 to 2010) and cross section data (33 province in Indonesia) also known as panel data. Hypothesis testing in this study is conducted by using Path Analysis Model under SPSS 17.0. Test of 2 (two) hypothesis with level of significance α = 0.05 obtained the following results: First, minimum wage has a negative and significance effect on labor absorption. The effect of minimum wages on employment has a path coefficient of - 0.39 with a probability value of significance (Sig) of 0.000. The results of this study indicate that the increase in minimum wages will reduce employment of low productivity labor that commonly absorb in primary sector, the sector that absorb most labor. Second, labor absorption has positive but not significance effect on social welfare. The effect of labor absorption on social welfare has a path coefficient of 0.08 with a probability value of significance (Sig) of 0.332. The results of this study indicate that the increase in labor absorption does not cause an increase in social welfare of province in Indonesia due to: 1). Minimum wages received by the labor is lower than minimum basic necessities, 2) minimum wages received by the labor is lower than taxed income level.
